An Extended Thinking After Interviewing Zhang Haiyan from Tiantu Capital
In this reorganized interview manuscript, we will go through several interesting topics on consumption upgrade, the driving force of this upgrade, and difference between early-and late-stage ventures with Zhang Haiyan, partner of Tiantu Capital.
"One of the most significant factors that affect the consumer market is a slow variable -- demographics," said Zhang Haiyan (张海燕) firmly with a humble attitude. "From the present population distribution, we can infer the future structure in the next 10 to 20 years."
Two weeks ago, EqualOcean interviewed Zhang, partner of the Tiantu Capital (天图投资), the famous consumption-focused investment institution that has participated in the financing of ZHOUHEIYA (周黑鸭), Pagoda (百果园) and the RED (小红书).
Consumption refers to the final use of goods and services by people to satisfy their needs. Those needs describing in Chinese proverb are “衣食住行，吃喝玩乐”. To specify, food & beverage, wine & cigarette, beauty industry, entertainment, clothing, houseware, home appliances and mobility.
For Tiantu Capital, who made the strategic decision to focus on the consumer market since 2012, has been expanding its investment map that includes education and household industry.
The definition of consumption is quite precise for us, as long as the products and services are targeting to consumers, they belong in the sphere of big consumption as our potential portfolio. -- Feng Weidong, Managing Partner of Tiantu
Working as a software engineer for years before he became a partner in Tiantu, Zhang is charismatic with rigorous logic. He explained the strategy their team applied in investment activity.
For the late-stage ventures that he has been focused on, the team looks for certainty in their investment. The relative risk averse trait is highly related to the formation of LPs. The late-stage LPs are less aggressive in profit-making but prefer a balance in risk and return. Therefore, Zhang and his team look for consumer products or services that possess a large enough market and have the potential to be widely accepted by the public. Upon this foundation, to pursue certainty.
While for the early-stage ventures, Tiantu emphasizes greatly on the founding members in a startup. "This is actually more crucial for early-stage companies than business models," Zhang added. "For startups, their development strategy and direction, based on his past experiences, would have major adjustments. Thus to evaluate the founding members is more reliable than the business at the beginning."
In addition, whether a company could shot to fame in a very short period of time is also deemed as a necessary condition for early-stage ventures. Though not a sufficient condition, the ability to become stardom would test if certain products or services could be rapidly accepted by the public with less capital input.
When talking about the specific companies, Zhang mentioned Feihe (飞鹤奶粉), a Chinese milk powder manufacturer in their investment portfolio. The company focus on the R&D and production of infant milk powder currently tops in market share in China. And Feihe fits the criteria of Tiantu's investment strategy.
First of all, a big enough market.
Secondly, a proved business model that can be applied nationwide.
Last but not least, the branding capability that ideally fits its product.
As China has been entered a new normal state with a slower than before GDP growth rate, the government is determined to shift to a stronger domestic economy rather than external trade. Companies, as well as investors in China, are confident in the rise of domestic consumer brands.
Zhang who mainly focused on education and household industry has great faith in Chinese new consumer brand to become influential international ones.
The great improvement in China's manufacture upgrade enables companies to provide consumers with products with much better quality and design. Moreover, with a solid infrastructure built in the wave of Internet plus, startups could reach to consumers that they might be impossible to attract before.
Now, the driving force of innovation in the consumer market has transformed from Internet to mobile Internet, and to the technology-empowered business model.
"The current focus of Tiantu is the companies that not only specialized in the consumer sector but also consciously leverage their skillsets by using big data, artificial intelligence, and other information technologies." -- Zhang Haiyan
As mentioned at the beginning of the article, one of the most significant factors that affect the consumer market is demographics.
In 2018, newborns in China is 15.23 million, drastically decreased by 2 million than that of last year. The birth rate of 10.94%, hitting a record low since 1949. Besides, China is walking into an aging society. According to the National Health Commission, the number of elderly people in China is expected to peak at 487 million in 2050, accounting for more than one-third of the population.
However, the issue of an aging society may arrive earlier. Not just in the medical or healthcare sector, but the consumer sector as the current consumer players have paid much less attention to elders as they do to the new generation. Nonetheless, the "new generation" of aging people, who have experienced rapid economic growth, hold a higher standard of living and accumulated wealth, have large unmet needs.
Opportunity coexists with challenges, Tiantu Capital, a strong believer and practitioner in China's consumer market, showed EqualOcean its optimism and professionality in the rise and fall of the economic cycle.
As we observe the future, act before it occurs.