When Jules Miller, founder and CEO of The Nue Co., was meeting with investors for her $9 million Series A funding round that was finalized in June 2019, she cast a wider net than the status quo group of beauty investors. Yes, beauty power players like Waldencast, Unilever Ventures and the L’Occitane family office did participate, but so do did AF Ventures, a venture capital fund previously known as Accel Foods. Beyond The Nue Co., some of AF Ventures’ recent investments have been in Ready, Set, Food!, a childhood food allergy prevention company, and Wild Things Snacks, the maker of “Skinny Dipped Almonds.”

“The premise of The Nue Co. is that the products we make are the future of beauty … ingestibles and topicals that invest in ingredients, and that link health and beauty. What we do has been more in line with how the food industry talks about ingredients to the customer than the beauty industry,” said Miller of her partnership with AF Ventures.

As beauty deal hunting and deal activity has picked up in the world of Covid-19, it’s also extended to an unlikely group of investors — those previously centered on the food and beverage categories with little beauty-specific segment experience.

“We identified the better-for-you food and beverage space as an emerging sector back in 2014 and now see huge potential in clean beauty and wellness brands,” said Jordan Gaspar, managing partner and president of AF Ventures. “The combination of a winning leadership team, high-quality products and a well-positioned brand that is widely appealable gave us confidence that The Nue Co. was the right opportunity for us to launch our beauty vertical. The clean ingredient panel made this an easy pilot as we understood the core of the platform: [seeing ingestible and topical beauty] as health.”

VC firm Boulder Food Group is another dedicated food and beverage investing group that rebranded to BFG and invested in buzzy acne patch brand Zitsticka last October. At the time, Zitsticka also took capital from Unilever Ventures, but BFG led the brand’s $5 million round. Harbinger Ventures is yet another food and beverage firm that is toeing the line between beauty and wellness; it invested in essential oil company Vitruvi in February 2020, following deals with Miss Jones Baking Co. and Once Upon a Farm, a childhood nutrition brand. And industry sources told Glossy that Cavu, best known for investing in Beyond Meat and Bai, is also on the lookout for beauty deals. Cavu did not respond to requests for comment.

The beauty and wellness categories were blurring with food and beverage pre-pandemic, with ingestibles available in Sephora, Saks Fifth Avenue and Neiman Marcus, and clean beauty products widely available in Target. This likely sparked nontraditional investors’ interest in beauty brand opportunities, but some fringier food deals with strategics have also gone bust, making investors head for beauty. For instance, Sonoma Brands acquired Krave, an elevated meat snacks company, back from Hershey in May, after selling it to the chocolate giant for nearly $219 million in 2015. At the time, Hershey’s CEO Michele Buck also announced it was divesting from two artisanal chocolate brands Scharffen Berger and Dagoba, to better prioritize resources and its core business model.

“Food and beverage funds have so much money to deploy, but they are in a disjointed place because some big bets didn’t get big enough,” said Jeremy Triefenbach, co-founder and CFO of Stage 1 Financial. Stage 1 has a private equity arm of its business that is directly informed by its finance arm; it has invested in Herbivore, Ellis Brooklyn and Saie. Triefenbach said the company has been “deluged” in 2020 with inquiries from food and beverage funds on what the next big thing is and what companies can work together on.

For Zitsticka co-founder Robbie Miller, turning to BFG had to do with wanting a diversified point of view. “They have a proven track record to scale businesses, and have the operational expertise with cogs, packaging, fulfillment and finance,” he said. “We’ve got the beauty and personal care skills from Unilever Ventures, and BFG has been a sounding board for making sure we place dollars carefully in the right business development opportunities for the future.”

Jules Miller, too, felt she had the beauty prowess down pat via its partners at Waldencast, Unilever Ventures and L’Occitane. AF Ventures offered broader expertise to The Nue Co., which has been particularly helpful during the pandemic. Since the onset of the health crisis, the firm has been holding weekly opt-in town hall meetings with its brands to discuss risk assessment and strategies.

“One of the biggest threats at the start of Covid[-19] was that our fulfillment center in New Jersey was going to be shut down. Another portfolio brand suggested using Postmates to ensure our New York deliveries weren’t disrupted, and it was the single thing that saved us, because most of our customers are in New York,” said Jules Miller.

Until this point, beauty firms had a leg up from other consumer investors because of their relationships with beauty retailers like Sephora and Ulta; they promised entrance into these doors, as well as scale. But that’s changing as brands’ direct digital sites account for the lion’s share of their sales in a coronavirus environment

Zitsticka has no plans to enter a grocery or drug retailer; it launched in Ulta in March. “We have plenty of work to do with Ulta, and BFG has been fantastic to talk about packaging and fulfillment; they didn’t come in to change our distribution strategy,” said Robbie Miller.

Jules Miller echoed these thoughts. For its part, repeat purchase rates have boomed for The Nue Co; Miller said they are hovering at around 80% and, unexpectedly, the company’s subscription offering accounts for 75% of its DTC business. The beauty brand is also sold with Net-a-porter and Nordstrom, and previously sold at Barneys New York before it shuttered.

“We’ve taken the position to go into retailers, not necessarily to drive massive volume, but to address positioning. Barneys and Nordstrom were about saying your gut is beauty, sleep is beauty, and beauty is more than an eyeshadow palette or lipstick,” said Jules Miller. “It may be an easy decision to put a brand like ours on the shelf now, but if the retailer doesn’t get behind it with education, takeovers and sampling, it won’t sell. Until, Target, Sephora and Ulta can really provide that, we will stay DTC-first.”

As such, the push toward direct-to-consumer-centered business models will likely benefit firms like AF Ventures, BFG and Harbinger Ventures — and their subsequent beauty investments — despite not necessarily having decades-long relationships with Sephora and Ulta.

As Gaspar explained, “There are no prescribed rules in venture investing. Our area of the market is about backing visionaries and offering them as many resources as possible to help them achieve their goals. With innovation pipelines crossing multiple verticals of the consumer space and channel strategies bleeding together to form true omnichannel brands, strong funds will be conscientious about investing in quality brands that they can support.”