Where are VCs investing in China?

Article source: https://www.voguebusiness.com/consumers/vc-investing-china

Venture capital wants in on the Chinese consumer — and fast. In the first half of 2021, the aggregate value of VC deals in the Chinese consumer discretionary sector has already reached $11.9 billion. That puts it on track to smash through the values of 2020 and 2019, according to market data and insights platform Preqin.

Investors are energised by Chinese consumers’ resilience during the Covid-19 pandemic, together with a wave of innovative new ideas and the growing buying power of younger generations.

Among the beneficiaries of this influx of investment: Chinese streetwear brand SoulSense, multi-brand retailer Knowin and local beauty brands Into You, Zhuben and DearBoyFriend.

“One thing that has become clear as a result of this pandemic is that the Chinese domestic consumer is far more resilient than other consumers,” says Sunaina Sinha, an angel investor and founder and managing partner of Cebile Capital, a leading advisor in private equity and real assets. “Anything that targets the inelastic demand of that consumer is highly valuable.”

Even before the pandemic, a number of factors were already in play, such as the saturation of the internet market, explains Lanchun Duan, managing partner of global investment platform Cathay Capital. “It’s very difficult to find a new big platform opportunity, so investors are looking into the consumer sector,” she says.

New sources of e-commerce traffic and consumer acquisition, such as Douyin and WeChat, have in turn created room for new business models to emerge, while older local and international brands, often established 20 or 30 years ago, are lagging behind, observes Duan.

Over the last few years, a new generation of founders has also emerged, migrating from the internet sector to the consumer segment and applying their expertise in AI, data and digital tools to branding, marketing, consumer acquisition and product development. This energy has propelled many new consumer businesses into fast-growing enterprises, catching the attention of VCs, always fixated on the path to profitability. “A lot of companies in the consumer sector have grown from zero to more than one billion sales in the span of three years,” says Duan. “All these reasons combined have generated a huge investment opportunity in the market.”

New consumers, new opportunities

The growing spending power of Chinese millennials and Gen Z, matched by influential new shopping behaviours, are fuelling the development of business models that embrace elements of experience, entertainment, uniqueness and personalisation.