2023 was a turbulent year for venture capital which witnessed its worst year in a decade according to some metrics. With deal volume falling every quarter since Q2 2022, the VC world is facing a lot of uncertainty heading into 2024.
Despite the overall downturn, there were some very significant bright spots last year, namely Generative AI which had a blockbuster year. We also saw an interesting shift to more early-stage investments, with roughly 2 of 3 deals being early-stage according to CB Insights.
But even with the downturn, there is always something to be learned from investment trends as a sign of what’s to come. While many big manufacturers pulled back on M&A, others stayed the course.
As we look back at 2023, we took a deep dive into the investment strategies from some of today’s biggest global manufacturers to uncover key trends that will undoubtedly influence the CPG industry in 2024. Let’s dive into the latest corporate venture activity to see what lies ahead for CPG innovation.
The volume of wellness M&A activity by big CPG is a clear signal that the health and wellness movement is here to stay. The global wellness industry is now valued at $5.6 trillion, and is projected to grow even more.
CPG brands are making big moves to give their categories a wellness makeover.
Over the past two years, Unilever Ventures has made several notable moves here. In 2023, they invested in startups such as WishCare (wellness-driven haircare), What's Up Wellness (functional gummies), Thesis (brain health), Straand (scalp health), and Rael (holistic cycle care designed by women).
Across the board when you look at all of the acquisitions made in CPG over the past few years, there is almost always a wellness component signaling a major paradigm shift in the importance of wellness self-care as a driver of purchase decisions.
As DTC brands have saturated every established category from oral care to vitamins, manufacturers continue to seek out new and niche categories as well as find new underserved markets for growth.
The past 2 years have seen new categories like scalp health & menopausal skincare become major areas for innovation and M&A activity. Could temporary tattoos and body art be the next new beauty category?
In 2023, L’Oreal invested in the temporary tattoo micro-printing company Prinker Labs. This strategic bet was designed “to bring breakthrough beauty technologies that truly empower boundless personalization and self-expression into the hands of every person”.
L’Oreal is using Prinker’s micro-printing technology to power its new Brow Magic device that lets users design and print the perfect eyebrows directly onto their skin.
And this isn’t the first investment we’ve seen in tattoos from a major brand. BIC acquired Inkbox in 2022 and has since turned that technology into a line of temporary tattoo markers called Bodymark. While DIY tattoos may not grow into the next big CPG market, it is a great showcase of brands pushing the boundaries of traditional categories.
Biotech jumped into the corporate venture investment spotlight in 2023. As every manufacturer is setting goals to make their supply chains and sourcing more sustainable, biotechnology is enabling access to alternative ingredients and can help brands move away from things like palm oil and fossil fuel derivatives.
One of the biggest developments in this exciting industry is Geno Labs, a San Diego-based startup that developed a proprietary process to ferment plant sugars that produce ingredients to make sustainable surfactants. These cleaning agents are integral to all products across the home, personal care and beauty industries. L’Oreal, Kao, and Unilever have all invested in the startup as founding venture members.
Geno also created an ingredient called Brontide, which is made of butylene glycol, a chemical usually derived from petroleum. Their plant-based butylene glycol can be used to create the right texture in moisturizers and to boost antimicrobial properties. It is being used by Dermalogica who switched to using Brontide and created a campaign to raise awareness of the change among their customers.
L’Oreal meanwhile is no stranger to biotech, and has a few other initiatives in place including a minority stake in French biotech firm and microalgae manufacturer Microphyt as well as Laboratoire de Chimie des Polymères Organiques (LCPO) in Bordeaux. The companies’ JointLab L’Oréal LCPO conducts joint research to develop new polymers from biomimetic and biosourced raw materials.
2023 was definitely the year of generative AI. Every manufacturer rushed in to experiment with Open AI, Microsoft and other big tech leaders to accelerate everything from employee onboarding to copywriting and video creation.
While the big AI companies will continue to lead the industry on enterprise AI applications, as we enter 2024 we will start to see brands turning more and more to nimble startups that are solving for specific needs.
One of the most recent and interesting investments we saw In 2023 was L’Oreal’s seed round participation into Rembrandt, a startup that was only created a few months prior. Rembrand enables brands and products to be inserted into video content with hyper-realistic product placement and minimal invasiveness.
Rembrand provides a glimpse into the future of product placement powered by Gen AI.
This can unlock an entirely new way for brands to partner with video creators and enable real-time product placement at scale across video. In 2024, we could see more partnerships and investment in these gen AI startups, helping brands create new experiences around their products.
2023 was the year that manufacturers realized that teaming up with other large corporations to achieve shared goals was critical, especially in areas like sustainability. We already mentioned the team-up of Unilever, L’Oreal, and Kao as founding members of the Geno Labs venture to commercialize biotechnology-based alternatives to critical ingredients in beauty and personal care.
Overview of the startups selected to participate in Cohort 4
Another great example is the success of AB Inbev’s sustainability-focused 100 Accelerator. Created in 2018, AB Inbev started inviting other major brands to be a part of the program in 2021. Today, Coca-Cola, Colgate-Palmolive, and Unilever have all joined AB Inbevs program, offering mentorship, training and funding to entrepreneurs focusing on some of the toughest sustainability challenges. The program welcomed a record 46 startups last year.
These are just a few of the signals we’re seeing that point to an interesting year ahead for CPG innovation. While we may not see a complete rebound in the CVC landscape or M&A activity, corporate venture arms are clearly rethinking strategies and funding models, taking bets on earlier-stage innovation, and making meaningful moves on sustainability.
We'll be diving into more details about the industry's future in our next article from this series. Stay tuned to explore our predictions for top CPG trends in 2024.
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