Produced by | Entrepreneurship is at the forefront
Author | Li Xiaofeng
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Consumer investment in 2021 has composed a song of ice and fire.
In the first half of the year, many new and old areas such as ramen noodles, brine, Chinese pastries, jewelry collection stores, and smart fitness mirrors were tapped by investors, and their value soared with the help of capital. Investors are also caught in the competition for project mode, some investors introduced, the founder roadshow for one hour, they need to decide during this time to "invest or not to invest".
In July and August, the amount and quantity of investment in the consumer industry reached a peak and then showed a downward trend. Some people say that "consumer investment has entered winter", and some people think that this is just a return to rationality.
How enthusiastic consumer investment is when the tide rises, and how much the crowd laments when the tide recedes. Now, it is also time for investors and entrepreneurs to review and reflect.
"At present, it is indeed the bottom for the consumer industry, but the bottom also means the beginning of a new life." Some investors say so.
1. "Cooling" consumer investment
In the first half of 2021, investment in the consumer industry can be described as "crazy".
According to the incomplete statistics of IT Orange, from January to December 2021, a total of 826 financing transactions (excluding IPOs and private placements) occurred in the domestic new consumer industry, and the total amount of financing transactions disclosed reached 83.1 billion yuan.
These two figures far exceed 2020. In the whole of 2020, the number of investment and financing in the new consumer industry was only 286, and the amount of investment and financing was 45 billion yuan.
From the perspective of the number of financing and the amount of financing, July-August 2021 is a watershed, and after the peak, the amount of financing and the amount of financing for new consumption are on a downward trend.
Figure / 2021 Investment and Financing Atlas of New Consumption Sectors
Compared with the tracks of technology and medical care, the threshold of the consumer industry is relatively low, attracting investors and entrepreneurs to flock in. There have been reports that many investors in medical, hard technology and other tracks have "crossed over" to invest in consumer goods projects.
"Almost everyone is standing on the same running line, no one will understand more deeply than anyone," Zhonghai Investment partner Li Ying said to "the forefront of entrepreneurship", "many investors go to search for projects one by one, this month is this track, next month is that track, after casting the first place in a track, there are people who go to vote for the second and third places, and after the first three are cast, they change tracks." ”
When the consumer industry became a hot land, investors also opened a competition for projects. Gu Chengwen, a partner at Panda Capital, remembers that in 2021, the founders of some consumer projects will have one-hour roadshow, and they will need to make decisions during this time.
Not having enough time to gather information and communicate with executives or teams, rushing to make decisions without a full understanding of the founding team, the industry, and that pained her. In the first half of the year, she also encountered at least two or three good projects, but after a little hesitation, she was snatched away by other families.
While some popular projects are highly sought after, the voice of investors and founders has also shifted. Wang Sheng, a consumer partner at Innova Angel Fund, gave an example in "The Battle for Food and Beverage Funds" that when a consumer brand raises funds, it requires investors to write a small essay and have the opportunity to talk to the founder after writing.
The fiery investment environment has led to a rise in the valuation of some projects.
For example, the new Chinese pastry brand "Mo Mo Dim Sum Bureau", Tianyancha data show that in September 2021, it received the fifth round of financing, with a cumulative financing amount of hundreds of millions of yuan, and the valuation is said to reach 2 billion to 3 billion yuan. Specialty coffee brand Manner also completed three rounds of financing in 2021, and its post-investment valuation is said to exceed 10 billion yuan.
Ai Xiao, vice president of Tsingshan Capital, observed that around 2016, the valuation of early consumer projects was almost between 10 million and 30 million, but the project valuation of similar teams in the past two years has been 100 million yuan.
However, in the second half of 2021, the consumer investment frenzy will gradually stop.
According to Ene Cow data, in July 2021, although the number and total amount of financing events in the new consumer industry have declined compared with June, they still reached more than 100 cases, with a total height of 13.48 billion yuan. However, since August, the number of monthly financing projects has been less than 100, and the monthly financing amount has not exceeded 10 billion yuan.
In addition to the decline in the scale of financing, the situation of some "star enterprises" in the consumer industry is not optimistic.
Known as the "Light of Domestic Goods", perfect diary, its parent company Yixian E-commerce was listed on November 20, 2020, with an opening price of $17.61, after which the stock price reached a peak of $25.47 in February this year, but as of January 11, 2022, Eastern Time, its stock price was only $1.87, a nearly 10-fold decrease from the opening price.
Nai Xue's tea, the "first share of new tea drinks", which was listed in the heat of discussion and expectation, went to Hong Kong on June 30, 2021, with an opening price of HK$18.86, but the listing was the peak, as of January 12, 2022, its stock price was only HK$7.5, and this "new hope for the tea industry" is now a little disappointing.
The stock price of the "blind box first stock" Bubble Mart was also "cut from the waist", and the stock price rushed to 107.337 Hong Kong dollars at its highest, and the total market value once exceeded 150 billion Hong Kong dollars. As of 12 January 2022, its share price was HK$48.55, down more than half.
In addition, Haidilao announced that it would gradually close 300 stores by December 31, 2021, the new elements went bankrupt, and a number of consumer brands such as Chayan Yueshi, Ubras, and Yuanqi Forest suffered "marketing overturning"...
Frequent problems with head projects have hit investor confidence one by one, making them realize that the low-threshold consumer industry does not necessarily bring huge returns.
The first half of the consumer industry and the second half of the year are in stark contrast, so some people say that "consumer investment has entered winter", but some people think that the consumer industry is just returning to rationality.
2. The essence of consumer investment
The decline in the heat of consumer investment may have already revealed clues.
In 2021, in the rising investment wave of the consumer industry, the catering industry is a more representative segment, and traditional tracks such as Chinese pastries, lemon tea, brine, and ramen have been increased by capital. According to the statistics of the internal reference of restaurant owners, june to August 2021 is the period when brands are concentrated in financing, accounting for about 40%, but after August, the amount of financing has declined as a whole.
Graph /Photo Network, based on VRF protocol
Qing Yong, founder of Tomato Capital, told "The Forefront of Entrepreneurship" that one of the reasons for the decline in popularity is the transmission of the secondary market. The stock prices of catering companies in the secondary market generally fell, which led to a general decline in investment valuation expectations in the primary market, but entrepreneurs were affected by the capital heat in the second half of 2020 and the first half of 2021, and the valuation expectations were high, and the difference in expectations led to a cold in the second half of the year.
"Secondly, affected by the epidemic, at the beginning everyone misjudged the end of the epidemic, and now it seems that this may be a long-term battle, which is basically determined not to end in the short term, and it will be the norm to continue to repeat and repeat, so that investors are more rational." Qingyong said.
In addition, in the past, the valuation bubble of the industry was large, and when most projects did not grow exponentially as investors expected, it was inevitable to return to rationality.
Finally, difficulties in raising capital will also lead to a contraction in front-end investment.
In addition to external reasons, some problems in the consumer industry itself have also deterred investors. For example, in recent years, many consumer brands have weak research and development technology, lack of innovation, and once fell into a money-burning marketing war, often smashing millions or even tens of millions, but the winners of the marketing war are very few.
"I have only seen this kind of play in the Internet era, or the mobile Internet era, that is because the Internet itself has network effects, it can indeed be monopolized, and it can burn out a Didi or a Meituan." Gu Chengwen, a partner at Panda Capital, told "The Forefront of Entrepreneurship".
But today's cooling-off period also makes everyone have to reflect: why do consumer goods ripen in this way?
"The threshold for consumer brands is low, in this case, if you use the logic of the Internet's competition, or the logic of burning money to fight, I think this is very irrational, and there may be a lot of consumer goods 'falling off the altar' in 2022." Gu Chengwen said.
The seemingly low-threshold consumer sector has attracted many investors, but the return returns may not be satisfactory.
"Historically, the consumer industry has rarely become the mainstream of investor pursuit as in recent years," Li Ying said, "from our understanding, the consumer industry is not a sub-industry that guarantees that VCs can continue to eat dividends, it will have cyclical fluctuations and require a relatively long growth cycle." Maybe a brand has to go through a lot of dividend periods to prove that it is a sustainable brand. ”
Investors pay attention to traffic dividends, but it is difficult to invest in projects only by "traffic dividends". "Investors are likely to have hit the angel round when investing in the project, but they are facing the problem of whether they can exit in the later stage." Li Ying said that because the project is likely to shrink with the traffic dividend and consumer preferences, the valuation will shrink. This is also a point that many investors overlook.
"Most importantly, we are actually still betting on the changes in some key factors in this industry, whether they will dominate the pattern of the entire industry in the next 3-5 years," Li Ying further said, "for example, like the convenience fast food industry, we find that consumer recognition of brands takes a long time, and channels and consumer preferences are still changing rapidly." ”
Based on this investment logic, Li Ying's Zhonghai Investment focuses on companies that can improve the efficiency of the entire industry. "For example, when we look at the food technology track, we will choose to invest in some industrial companies upstream of the industrial chain, and in the long run, we feel that such companies are more competitive." Li Ying said.
3. Review and rebirth
In fact, even if the current consumer investment tide is in the stage of retreat, many investors believe that it is a good thing that the consumer industry has returned to rationality.
"The market has returned to a very rational and even pessimistic state, so that the project valuation can be more reasonable." Investors also have plenty of time to gather information and make decisions. Gu Chengwen told "the forefront of entrepreneurship".
The capital market has entered a cooling-off period, and enterprises have been able to develop better. "On the one hand, its ROI can be higher, on the other hand, companies can spend their time or money on things that can create more value, such as product upgrades, etc., unlike in the previous environment, forced to join the marketing war." Gu Chengwen said.
After experiencing this round of consumer investment cycle, it is also the time for entrepreneurs and investors to review.
First, don't talk about dividends away from the industry. Dividends can indeed spawn many new categories, but there is a reason why these categories have not become mainstream in the past. Even if it invests in the head project of a new category, it may not necessarily become a company like Perfect Diary and Heytea. Li Ying said.
Second, try to avoid quick success. The research on the industry and industry should still be in place, and we must be vigilant against some projects that grow rapidly and make profits quickly in the short term, such as offline retail projects that claim to be able to recover the cost of opening stores in a few months.
"Assuming that the profit model is very good, there will be a high probability that there will be many competitors entering, but this generally means that this project does not have any core technical thresholds or barriers in the product, and the industry is doomed to bleed into a river." Li Ying said.
Third, we must pay more attention to the capabilities of the founding team. "The management level of the founding team is the key point that determines whether a company can go steadily and for a long time." Li Ying said.
Gu Chengwen also believes that the strategic ability of founders is very important. "When the market is very hot, it depends on how he responds, and when the market is very cold, how he responds."
She found that when the market changes, many founders will mention two mistakes they have made — not spending money when they should be spending money, and blindly following up when they shouldn't.
"I think in the last year or two, a lot of founders have been spending money blindly, for example in marketing." Gu Chengwen said, "After experiencing such ups and downs, we look back and look back, and we can find that there is a big gap in the thinking of these founders in terms of strategy. ”
Some people focus on long-term development, have been thinking about how to deal with it and constantly carefully verify, but there are also some people who go with the flow and do not have a clear plan for the company's strategy and development rhythm.
In addition to paying more attention to people, Li Ying believes that we should also try to avoid choosing some projects with short cycles and high returns. "The essence of the project is that we are not afraid that its starting point is low, and we are afraid that it will have a high starting point and be downward." That is to say, if you are not afraid that a project will not make money in the short term, or if you cannot see the traffic dividend, you are afraid that the traffic dividend will come too quickly. "When everyone can't see the traffic dividend, does anyone dare to vote?"
The golden age of the consumer industry began around 2015, when the entire social environment provided many benefits for the consumer industry, such as the wave of new traffic dividends brought by platforms such as public accounts, vibrato, B stations, and Xiaohongshu, and many giants in the industry needed a certain amount of learning and adaptation time, which also provided a relatively blank competitive environment for new enterprises.
This is also one of the reasons why in just a few years, new consumer companies represented by Perfect Diary, Yuanqi Forest, and Naixue's tea have been rapidly spawned in China.
"But in fact, maybe from around 2019, after the capital market began to revel, we look at it from the business point of view, most of the companies are quite difficult to develop, and there is no feeling of all the way to the top in previous years." Gu Chengwen said.
There is no doubt that these investment experiences and experiences gained in this round of volatility will be used by investors in their future investment careers.
For the consumer industry, 2021 may be a turning point, and at the same time, it will also be a new starting point. Many investors believe that when the industry returns to rationality, there will be some new consumer goods companies running out, or the companies that have existed before will usher in a development inflection point and burst out more vigorous vitality in the new environment.
This is the most difficult period for new consumer investment, but it is also the best of times. As Gu Chengwen said: "The consumer industry is indeed at the bottom of the valley now, but the bottom also means the beginning of a new life." ”
*The title image in the text is from the photo network, based on the VRF protocol.