Chinese VCs Wresting for the cream of New Consumer Brand Space
This has become a consensus in 2020. The only investment hotspot that will still be pursued in the B2C field today by VCs in China is the Consumer Brand space.
Stefanie (Ying Jinfeng) is probably one of the FA (financial advisors) most often dealt with by investors who are still looking at B2c this year. In 2015, as one of the earliest investors in the new economy field, she resigned from Trust Capital and founded the boutique investment bank Mu Mian Capital. The major consumer brand market has been the core investment focus of Mu Mian from the beginning. Stefanie believes that based on changes in content distribution channels, upgrades in supply chains, and generational changes in consumer groups, “domestic consumer brands will surely usher in a huge opportunity to rise.” Mu Mian has also served a series of celebrity consumer brand cases, including specialty coffee three and a half, parent-child lifestyle brand Nalbao, light outdoor brand Jiaoxia, Greek yogurt brand Lechun, etc. “There are still a few top players in the category that cannot be publicly disclosed, and their valuations are already at the level of unicorns.”
But before 2019, Stefanie often felt that “the range of investment institutions that can be selected for brand promotion is very limited”: many investment institutions do not look at brands at all, and often say that “we are very concerned about consumption, but the investment platform is in line with our style. Consumer brands are not sexy enough”.
In a sense, for venture capitalists, this is a reasonable idea: only Internet platforms can achieve explosive growth and may bring a hundredfold return. Traditional consumer brands “can achieve this within three to five years. One hundred million in revenue is not bad”, which is totally incompatible with VC thinking.
After a long-term experience in servicing consumer brand financing, Stefanie has accumulated a pool of “brand-oriented” institutions, which “accounts for 20% of mainstream institutions on the market.” But beginning in the middle of last year, she obviously felt the wind direction changed. Following Hillhouse Ventures’ investment in Beauty Brand Perfect Diary (WanMei RiJi), Sequoia China became a shareholder of Popmart, and the valuation of Hey Tea exceeded RMB 10 billion. Some mainstream VCs who did not participate in brand investment in the past, “From the investment manager To partners” began to establish contact with Mu Mian Capital through various channels. “Suddenly, almost all renowned VCs have switched to startup brands in this space.
At the beginning of 2020, Mu Mian Capital ranked first in the category of the technology underwear brand it serves, and it is almost empty in the most famous live broadcast rooms. The company has not yet fully initiated financing, and top investment institutions have quietly locked in investment opportunities. The investment circle began to frequently mention PopMart, Hi Tea, Perfect Diary, and Yuanji Forest. The primary market was silent for a whole winter, as if it had returned to the hot TMT era.
“It’s as if the (consumer) brand is the last oasis for the B2C mar.”
The Battlefield for VCs
Ye Chunyan, a partner of Zhengxingu Innovation Capital (hereinafter referred to as “Zhengxingu”), sent some researches on Popmart domestic and foreign comparable companies to CEO Wang Ning. She wants to try again to convince Wang Ning to open up financing. This case is difficult to get into. Ye Chunyan knows that several other big funds are eager to try, including Tencent and Ali.
“It’s completely the competition of top brands, which is fierce. Just like everyone grabbing headlines and Didi before.”
Previously, Ye Chunyan mainly watched the Internet and entertainment tracks, and voted in star projects such as Bilibili, ByteDance, NetEase Cloud Music, Happy Twist, Luo Ji Thinking, and Uncle Kai’s storytelling. The industry jokingly called “the investing lady”. . At the end of 2019, Zhengxingu exclusively led nearly 100 million U.S. dollars in investment before the listing of PopMart. This is Popmart’s last round of financing in the primary market, and it is also Zhengxingu’s first benchmark investment after more than a year of exploration in the consumer field.
Ye Chunyan actually noticed PopMart at the beginning of 2018. At that time, from the perspective of content monetization, he continued to scan the industry for opportunities for second-dimensional derivatives such as hand-made products, following the “earlier investment in station B method”. And PopMart is undoubtedly one of the prominent ones in the industry map, and it happens that the company also opened a round of 5% of the old stock transfer. The first communication between her and founder Wang Ning felt “very good” and felt that “Wang Ning has a deep understanding of the fashion industry, and loves it very much, and has been working for a long time.”
Zhengxingu expressed its willingness to invest at the time, but the valuation given was lower than Wang Ning’s expectations. At the same time, Ye Chunyan was also “a little worried” about the high sales ratio of “Molly (Popmart Core IP)” in 18 years. Out of “rational considerations”, Zhengxingu did not enter the market in this round. These old stocks were quickly bought by Black Ant Capital, a new and aggressive consumer fund.
Ye Chunyan soon discovered that she might be wrong. Since then, Popmart has continuously hosted international trend toy fairs in Beijing and Shanghai to create a wave of enthusiasm. The net profit that year reached nearly 100 million yuan and doubled the expected. “We underestimated the ceiling of the trendy play industry, and also underestimated the core competitiveness of PopMart as the pioneer of the blind box category.” She said that the buying enthusiasm of the mainstream young people has made it more determined that she wants to invest in this company. At the same time, Zhengxingu also found a new investment force-the consumption of the younger generation.
“The traffic dividends brought by the Internet are basically gone, and potential unicorns are becoming more and more difficult to find. All institutions are doing research to find new directions, and want to find companies that can grow to tens of billions and hundreds of billions of dollars in market value. Ye Chunyan said in an interview “If you benchmark the United States, you will find that China has a lot less consumer brands of the same size. In the future, China will have a batch of tens of billions of US dollars of consumer companies.”
This is not the discovery of Ye Chunyan alone, because the pace of consumer brand financing immediately rushed forward. In 2019, Yuanji Forest and Santonban both completed two consecutive rounds of financing.
The freshest example is the beauty contact brand MOODY (目荻). From April to June this year, MOODY quickly completed two rounds of financing totaling 60 million yuan within two months, and this is less than half a year after the launch of MOODY products.
Similarly, there is the convenience food developer Baijia Foods (the main brands are Baijia Chenji and Akuan). In February and June this year, Baijia completed 110 million yuan and 200 million yuan in financing respectively, with the goal of “the first new-type convenience food company listed in the domestic A-share market.” At the media meeting held on June 11, the company’s chairman Chen Zhaohui said with a slight humility that the new round of financing “has a significant improvement over the valuation of the A round.”
There was report of a valuation of this round of financing before Baijia Investment was about 1.9 billion yuan, which was almost double the A round. Baijia can complete the leap in a few months. On the one hand, it is affected by the epidemic factor-the order volume in February reached 5 times the same period last year, and the shipment volume by June increased by 120% compared with the same period last year. On the other hand, it is also because of “strong fund entry”: Baijia Food’s B round lead investor is Hillhouse Ventures.
Hillhouse Ventures, with an initial scale of RMB 10 billion, was just established in February this year. It is a subsidiary of Hillhouse Capital and focuses on early investment. Up to now, among its 15 investments announced, in addition to the medical and toB fields, the toC field has all fallen on consumer brands.
In the primary market investment industry where the Matthew effect is becoming more and more obvious, top institutions will not allow themselves to miss any track and project that are generally considered to have potential, “even if the price is high, they must invest.” In the first half of this year, Sequoia China has successively announced that it has invested in three and a half, Chinese-style fast food village bases. Hillhouse, which covers the whole cycle, has also completed the lead investment in Hey Tea Series C. Both companies have also invested in the dairy brand Junlebao.
“Almost all head brands can see these two figures behind them.” The above-mentioned insider said. And the top players with strong funds are like the vane of the primary market, burning the already fiery battle even hotter.
The First Mover
At the same time as the intensive financing of top brands, it is the infinitely rising curiosity of the venture capital circle for an emerging firm: Black Ant Capital (BA Capital).
In early 2016, Black Ant Capital was founded. From the very beginning, it declared that it only invests in consumption. You must know that it was an era with unlimited investment hotspots including the sharing economy and artificial intelligence. Founded 4 years ago, Black Ant’s current cast list is gorgeous: Hey Tea, PopMart, Jiang Xiaobai, Yuanqi Forest, Wang Fubao, Wang Fufeng, the main product of sugar-free yogurt, and Chinese barbecue long ago. Lamb skewers and so on. Among them, a number of companies have been among the ranks of unicorns.
There are three founding partners of Black Ant, all born in the 1980s: He Yu, Chen Feng and Zhang Peiyuan. Among them, He Yu and Zhang Peiyuan are old colleagues in the Orchid Asia Investment Group and have long been engaged in Internet and consumer investments. After that, He Yu once went to ByteDance to be responsible for strategic investment. He has experience in consumer research, financing mergers and acquisitions, and management teams. He is also the actual trader of black ant management and operations. Chen Feng founded and operated a series of consumer brands, including trendy glasses Mu Ninety, life glasses aojo, fashion cosmetic contact lenses WAKEUP, etc., and can sell glasses to people who don’t wear glasses.
Some people commented that the magic of Black Ant is that “no matter whether the brand is open for financing or not”, “as long as Black Ant pays attention to this category, it will not miss the first place.”
Compared with the Internet projects that venture capitalists are familiar with, the biggest challenge of consumer goods investment is that good projects are always profitable quickly, and they are not short of money.
“This is really a big painful point’ for investing in consumer brands,” Ye Chunyan said. After she missed the window period for the transfer of PopMart’s old stocks in early 2018, it took a full year and a half to convince Wang Ning to open a new round of financing.
So why are brands willing to accept the entry of Black Ant Capital?
Many people in the industry expressed the consensus that among a large number of consumer investment institutions, the founding team of Black Ant is a special existence, young and financially free, and understands not only investment but also the consumer industry.
He Yu had met Chen Feng a few years ago when he was still working at Lanxin Asia. The consensus on the future development trend of the consumer industry made the two friends become friends. Foundation. In November 2016, 50% of the parent company of Mu Ninety was acquired by Essilor, a French optician company. Since then, Chen Feng has gone through the whole process of creating a consumer brand and then retiring from 0 to 1.
“Most Chinese industrialists continue to operate regardless of brand quality,” said a senior consumer investor. After completing the business, people actually don’t know how to “dispose” an enterprise. Black Ant is a rare “both resources and experience” in the consumer investment field and can really help the brand founder’s capital.
For example, as China’s largest eyewear chain brand, Mujiushi has opened more than 2,000 stores in shopping malls across the country, and more than 3,000 globally. “The various problems faced by many start-up brands when opening stores are not a problem for the Black Ant team.”
The founding team of Black Ant Capital is still further systemizing individual capabilities. For example, whether it is recruiting investors or post-investment personnel, “have been in the consumer industry” is a very important one.
In a 2018 business plan of Black Ant Capital, its post-investment service is divided into six stages, including pre-investment combing and diagnosis, strategic advice, 100 days after investment, 365 days after investment, business Continuous improvement and iteration, and how to capitalize. Compared with the fact that most institutions still focus on docking resources and information after the investment, the service content of Black Ant Capital is obviously more specific and targeted. For example, the 365-day post-investment service includes: channel expansion plan, supply chain construction, capital management and budgeting, talent reserve and incentives, etc.
In addition, Black Ant Capital, which has a strong background in the consumer field, is also well versed in the brand founder’s dedication to the “brand”. In some brands that are reluctant to open a new round of financing but are good enough, Black Ant will try to buy old stocks as much as possible. Buying old stocks is the same as new financing, you need to convince the founder to agree, and the difficulty is the same. A senior practitioner in consumer goods analyzed it this way: “To some extent, investors who can leverage established consumer brand stocks either have a better understanding of the industry and the brand, or the higher bidder.”
“Everyone who does a good job of a brand has a cleanliness habit. Those who value investment in him understand it, and they have very demanding requirements for investors.” A FA familiar with Black Ant Capital said, “Black Ant has formed an investment in just a few years. The brand effect of consumer products will become easier and easier in the future competition of institutions.”
Black Ant Capital’s current LP (investor) lineup is in addition to mainstream market-based funds of funds such as Zhongyuan, Yuanhe, and Xingjie, and Wang Ning, the founder of Bytedance and Black Ant, the founder of the company PopMart. It has also become the investor of the new fund.
For most investors, the genes of black ants are difficult to replicate. So how can a “normal fund” leverage a brand that is not hungry for capital enough?
One way is to enter the market early enough and be “anti-consensus” enough. Han Rui, a partner of Gaorong Capital, focuses on investment in the consumer track. He has successfully cast Perfect Diary and Yuanji Forest in the past two years, both of which are the “top-tier” in their respective categories in 2019. In 2018, on the eve of the explosion of the Perfect Diary brand, Gao Rong Capital once led the investment in Yixian e-commerce, the parent company of Perfect Diary, and continued to raise the investment; while Yuanqi Forest was recognized as the most competitive tea beverage category, traditional enterprises and international There are many big names, and it is considered that “the possibility of killing them is very limited.”
“If you want to invest in a good enough consumer brand at an appropriate price’, you must seize the’anti-consensus’ time window”, which is when the market is not optimistic. Han Rui has mentioned “We are consuming Many of the investments in the industry are the first or only institutions to give TS. This requires us to “find the picture”, redo the research early, and make predictions when the market is not fully clear and the target company is not yet mature. .”
Another method is to respect the founder’s willingness to say “no” temporarily, and to express sincerity patiently and continuously. Tiantu Capital waited two full years before investing in Baiguoyuan in 2015. “They have always wanted to get in but can’t get in. They have good cash flow and are very unfamiliar with equity investment and are quite repulsive.” Feng Weidong, chief investment officer of Tiantu, said in an interview before. It was not until that year that Baiguoyuan suffered a fire accident in its warehouse, which caused a short-term funding gap of tens of millions, and Tiantu’s money had a chance to send carbon in the snow.
In the one and a half years waiting for Popmart to open up financing, Ye Chunyan never stopped contacting Wang Ning: she helped dock various resources that might be needed, and constantly shared her research on the industry and competing products. The news came out that the company and other funds “deeply talked and got closer”, and did not give up. In the end, at the end of 2019, with the advantage of “the terms are more in line with the company’s needs than Tencent and other funds”, Zhengxingu obtained 3.50% of the company’s shares through capital increase and old shares. Now it can be seen from the prospectus that among the few shareholders of PopMart, Zhengxingu is the only institutional shareholder with preferred shares. (Note: Preferred stocks refer to stocks with preferred rights. The shareholders of preferred stocks have priority over the company’s assets and profit distribution.)
Conservative or sexy?
Now, brand investment is full of people from the top of the mountain to the mountainside, “just like a Shura market.”
But Stefanie still remembers that once there was almost no man’s land. Why are mainstream venture capital institutions reluctant to look at brands in the past? The answer is: not sexy.
The “sexy” definition in the VC world generally has three characteristics: revolutionary innovation, explosive growth, and a sufficiently high ceiling. Traditional consumer brand companies are unqualified on these three points.
The essence of a brand is to sell goods; offline stores have to shop one by one, and the crowd has to shop one by one; and consumer brands always belong to a certain category, a certain market, and a certain region, with “limited ceilings”.
But in the past two years, the low ceiling in the past was broken.
Several factors have changed the development curve of consumer brands. The first is the crowd. The younger generation born after 95 no longer blindly trust the international big names, but look forward to domestic emerging brands with attitude and cost-effectiveness. Complicated marketing techniques such as Xiaohongshu, Station B, and live streaming have completely changed the past marketing strategies of big names relying on brand advertising to penetrate the hearts of the people, and become closer to the audience.
Deeper changes have occurred in the supply chain. China’s supply chain, which has assumed the role of the “world factory” for many years, has been extremely mature, and has evolved to be more high-quality and flexible, providing domestic brands with the basic ability to produce more differentiated and personalized products.
Huaxing New Economy Fund is also an investor in PopMart. New consumption of the new generation” is among one of key investment criteria for them: Huaxing will start from “new crowds, new media, new “Channels, new supply chains and new technologies” are examined in five dimensions. They believe that “all new consumer companies are permuting and combining the five major consumption factors.”
“China is not upgrading consumption, but grading consumption. China’s total consumption is large and the structure is complex enough. In this context, many different consumer markets have been separated. If you want to make good consumer products in China, you must Fully understand each consumer market and produce different products for different groups of people. This gameplay will bring a lot of imagination to China’s own brands in the future.” Yuan Lingyun said.
Ye Chunyan also found that with the continuous opening of online channels, traditional brands used to reach 100 million sales in 3–5 years. Now many new brands only need one year or less, and they leverage e-commerce, Live broadcast and various Internet marketing can quickly lead the way. “In the future, Zhengxingu will continue to invest in a number of top consumer brands around the two core elements of young people and online.”
Han Rui believes that the new consumer giants that will emerge in the next 5–10 years will have a common feature-brand and channel integration, product and service integration. “Scenarios and functions may replace categories as the number one label for consumer giants in the future.”
Hot money flocking to consumer brands is undoubtedly based on the expectation that consumer brands can be sexy. It took 33 years from its birth to the listing of Coca-Cola, and it took Nike 16 years, but only a few years ago. Our brand club has begun to add extremely young unicorns: the post-investment valuation of 2.6 billion US dollars. PopMart, $2.5 billion hi tea, $2 billion perfect diary, 1.2 billion U.S. dollars Nayuki’s tea, etc.
How is the high valuation calculated? According to FAs: Generally, organizations will obtain the valuation of the brand based on the total revenue of the previous year multiplied by the “P/S multiple”.
P/S (that is, market value divided by revenue) reflects the price that shareholders are willing to pay for every dollar of the company’s sales. The P/S multiple of the last round of PopMart before its listing is about 10 times, far exceeding the current “premium” of Bandai Namco, which produces a high level in the Japanese secondary market-its P/S multiple is only 2 times. The industry predicts that during the IPO stage, PopMart is valued at US$4 billion to US$5 billion, and the corresponding P/S multiple is 15–20 times.
Some investment bank practitioners believe that “10 times (P/S) is still within a rational range in the primary market”, but what does a P/S value of 20 times in the secondary market mean? Kweichow Moutai, known as the “strongest bull stock”, now has a P/S multiple of about 21 times.
So, can those investment institutions that enter the market at a high price eventually retreat from these top-tier consumer brands?
Ye Chunyan does not deny that PopMart is a company with a “larger market value” among all invested companies in Zhengxingu. “Willing to invest in high positions is definitely optimistic about the company’s follow-up development. PopMart’s business model is still being upgraded. It not only forms a closed loop from IP incubation, design, production to online and offline sales, but also an open and linked system. Yes. It is very imaginative to say that all the top domestic and foreign IPs can be produced in the PopMart model, and it will become a new way of monetizing these IPs. Moreover, I also believe that the company will become a real A global international brand.”
Binfu Capital, a RMB fund established in 2015, invested half of its funds in the consumer sector, and was also one of the investors of Baijia Foods’ Series A. When almost everyone in the industry pays attention to brands, Binfu Capital, a pioneer in consumer investment, has begun to shift its sights to the upstream, investing in supply chain companies that provide raw materials for brands: including supply chain for multiple maternal and child, beauty brands Anhui Jinchun, a manufacturer of non-woven fabrics, one of the main logics for its investment in Baijia Foods is also “optimistic about its ability to take over the supply chain of three squirrels, Li Ziqi and other brands.”
“The investment in the consumer track is very lively now. There are some organizations that use the TMT project to value consumer brands based on GMV and other indicators, causing prices to bubble. But if the brand cannot reach a relatively high growth rate, In the end it will take a very long time to digest the valuation.” Binfu Capital Managing Director Yin Linyi.
There are many investors who hold this view: Except for a few top projects with very good net profits, there is still room for return even with high valuations, most institutions will face the development of slowing brand development and thinning of value. curve. “Even if 80% of the brands are listed, there will not be many people buying them. There is no future for high-priced investment.”
Head projects with high ceilings are always in the minority. If investing in the TMT platform is likened to a gambling with an unknown future, for VCs, investing in a brand that is “less head and less expensive” is not like venture capital, but more like a “financial management with fixed income”.
Sun Wei, a partner of Huaying Capital who has long-term investment in the consumer track, has invested in outdoor sports brand EDCO Triangle, female sports brand MAIA ACTIVE and so on. He said these brands for specific groups may not be as well-known as head brands, but they are still quite popular in the current capital market.
“Some brands will go through a small and beautiful stage from the beginning.” Sun Wei believes that consumer brands, like other species in the business world, will eventually return to the 28th principle. “Even if it looks small and beautiful at present, a sub-category in China has the ability to achieve sales of 400–500 million yuan. As long as the brand premium is reasonable, the net profit will be at least tens of millions.” Then, as long as the entry cost of investment institutions is relatively high Low, “For example, within 100 million, this kind of project can’t lose money, and there will be an explosion in the future.”
In fact, the current is not the first confluence of consumer brands and capital. “Amoy Brands” was an earlier pioneer.
Around 2010, as Taobao put forward the concept of “Tao Brand” (referring to the original online brand recommended by Taobao Mall and consumers), a large number of “Tao Brands” have been born from clothing bags, cosmetics and skin care to nut snacks. Because of its innate Internet genes, it has won the support of many first-line investment institutions: Legend Capital invested 100 million yuan in women’s clothing Qigege, Today Capital and IDG Capital invested in the snack brand three squirrels, Qiming Ventures also invested in Afu Essential oils.
From the perspective of capital, most of these companies have gone public or acquired. However, from the perspective of brands, with the exception of the three squirrels and other individual brands still exerting influence, a large number of “Amoy brands” have declined or even disappeared.
It would be interesting to see now the VCs have caught up to the consumer brand space, whether they can help many of the stronger brands in the pack to create the growth the founders needed.
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