Click 'Read Original' for details Source: BotF Future Brands (ID: BrandoftheFuture) Capital has stopped investing in new brands. This signal has become increasingly evident since the second quarter of this year. The consumer market remains hot, and investors and P&G managers are still heeding the call to start brands, with new brands emerging endlessly in the past six months. Business plans are everywhere, but capital is increasingly cautious. The frequency and pace of brand financing PR have slowed down. In the first half of the year, the number of early-stage angel and seed round financings dropped by more than 10 percentage points. Moreover, those institutions that were keen on new consumer brands in 2020 have shifted their focus to offline. "Let the bullet fly for a while" has become the consensus among most Chinese consumer-focused VCs. After all, very few new brands manage to stand out, and even if they do, their traffic models are quite unattractive—so unattractive that not only the A-share market rejects them, but even the Hong Kong stock market closes its doors. Meanwhile, the "true brands" favored by top capital have seen their valuations soar to incredible levels amid the boom bubble, deterring other institutions. With no new tracks to invest in, no good categories to bet on, and old brands inaccessible, many consumer capital funds have entered a lull, forced to look at offline businesses, especially catering. Consumer investors are gradually losing confidence in traffic-driven brands and have entered a phase of endless观望 and waiting. The top players are largely settled, leaving fewer opportunities for new brands In most new consumer tracks, the leaders have quietly emerged, holding a lead of more than two positions over the second place. Thanks to the early traffic dividend of new consumption, most brands established before 2018 were able to acquire customers across multiple platforms at low cost. As long as the product itself was decent, with mass-market price points and good user retention, they could now achieve sales in the hundreds of millions. Take the beauty track, for example—the track that capital favored first and exited fastest. Florasis and Perfect Diary have taken the absolute lead. The former builds its brand through national-style ideology, attracting countless fans, achieving nearly 230 million RMB in GMV during the 618 period. The latter has completed its IPO, leveraging rapid supply chain iteration and high-frequency new product launches, also achieving nearly 200 million RMB during 618. In contrast, other emerging brands like Judydoll, Colorpedia, and Joocyee have performed mediocrely. In color cosmetics, only niche segments still offer opportunities, such as Blank Me's base makeup; for others, breaking out is extremely difficult. Now look at the coffee and instant drink track, which has been hot in recent years. Saturnbird, an emerging brand founded in 2015, now has a post-investment valuation of up to 4.5 billion RMB. In the recent Tmall 618, it topped the instant drink list by a landslide, with GMV approaching 90 million RMB during the event, more than double that of隅田川 and Yongpu. Its annual sales in 2020 were nearly 400 million RMB, almost double that of隅田川 and nearly triple that of Yongpu. Saturnbird has captured a significant market share, squeezing the living space of other coffee newcomers. Other brands find it hard to compete in the instant coffee segment and can only differentiate by offering new product forms like drip bags and coffee liquid. Saturnbird Coffee Source: Official Weibo In the underwear track, Ubras, founded in 2016, grew against the trend during the pandemic through a live-streaming matrix, leveraging its pioneering "size-free underwear" category to become the track leader. Its GMV during this year's Tmall 618 reached as high as 300 million RMB, far exceeding the other two well-known players,蕉内 and内外, by more than double, let alone the smaller brands. To find new growth points in the underwear track, brands can only rely on continuous segmentation, such as奶糖派 targeting large-bust consumers. But segmentation also means lower ceilings, which does not attract capital. In various hot tracks, the leading brands have firmly occupied a significant market share and consumer mindshare, even locking in a group of highly loyal users through brand culture. This means that the development opportunities and growth space left for new brands are increasingly limited. Finding new tracks and category growth opportunities is also becoming harder. Capital is the fastest-changing barometer across the industry, as can be seen from the concentration of investments in each track. In 2019 and the first half of 2020, capital focused on beauty. In the second half of last year, the beauty track had few growth opportunities, and new brands did not perform well, so institutions shifted their focus to food and health products. In the snack track, which was hot this year, good founding teams and brands were all snapped up by capital. Now, there are no good brands left to invest in in the food and health products track. Capital has finally started to cast a wide net across miscellaneous tracks like outdoor, apparel, and home goods. The sleep market, represented by躺岛,菠萝斑马, and亚朵生活, has attracted capital, but soon the track leaders were also fully invested. Track after track catches fire, and category after category gets fully invested. When the hot tracks have already produced leaders, and niche opportunity categories have been circled by capital, the opportunities left for new brands are dwindling. Ubras Source: Official Weibo Old projects have excessive valuation premiums, making it hard for mid-to-small funds to invest With new categories hard to find and good brands hard to come by, capital has turned its attention back to those old projects that have been over-invested. According to CBNData, in the first half of this year, the proportion of investments in mid-to-late-stage projects (Series B and beyond) increased by 14 percentage points. Old projects are "old but vigorous." After several rounds of financing, their overall team structure is more complete and mature, and their strategies and products have been validated by the market. They have established a foothold in their tracks, with lower risk. Although their growth is slower than early-stage companies, their prospects are clearer, making them favored by capital. However, old projects are not "investable at will." If the difficulty of encountering a quality early-stage case is 1, then successfully adding to an old brand can be as difficult as 100. The capital game of hot potato is no secret in the industry. Popular brands have already been invested in one by one by top capital. When well-known investors bet on good cases, they deliberately inflate the brand's valuation, cooperate with media publicity, and have multiple financial advisors assist, pushing the valuation to the forefront. It's like a vegetable vendor hawking cabbage: calling a brand worth 200-300 million USD up to 500 million, or one worth 500 million up to 1 billion. Valuation hype has become a new type of leverage, designed to facilitate capital's exit and equity sale at a higher valuation in the next round. For example,自嗨锅, during its Series C financing last year, had a valuation as high as 500 million USD. After the Series C++ round this year, it is said that the valuation is even higher, which is enough to scare off many mid-to-small capital players. The premise of valuation hype is that capital believes market enthusiasm can support the financing landing, which was still feasible in the early stages of new consumer investment. But any behavior that deviates from actual value and violates objective laws is "hooliganism." Although the capital market has no urban management or price bureau, when these overvalued brands are compared to the secondary market, their PS multiples are alarmingly high. Having a PE-stage valuation while actually being at the VC stage is not good for the brand's future development. Behind the absurd valuations, small capital collectively withdraws, high-valuation brands have no one to take over, and ultimately only a few top capital players in the circle relay among themselves. 自嗨锅 Source: Official Weibo Unhealthy brand traffic models lead to failed capitalization It is an indisputable fact for capital that very few new brands manage to stand out. The reason is obvious: unhealthy traffic models mean that enterprise development is dominated by huge marketing expenses, and they even take on debt early, making it difficult to capitalize and go public. When marketing expenses account for 60% or even 70% of corporate revenue, cash flow becomes the biggest challenge. Selling one item at a loss is no longer a legend but a real dilemma faced by many emerging brands, even leading brands. The traditional track is the same. For example, in yogurt, a certain emerging brand that frequently appears in live-streaming rooms reportedly has annual marketing expenses as high as 120 million RMB. It can be said that it loses money on every cup sold, "by any means necessary" to seize market share and consumer mindshare. Innovative categories in new tracks are also like this. For example, oral care, which seems like a new growth point, still loses money after saturated ad spending—earning 1 billion can result in a loss of 200 million. Another example is the recently popular snack track. A niche brand, in order to expand its market, aggressively invested in Taobao affiliates during the cold start phase, offering high commissions, which led to a temporary "false prosperity" in the market. However, when marketing expenses were reduced and the brand decreased on-site advertising, sales naturally declined rapidly. This is using traffic to buy sales, misjudging the market size, leading to weak growth, and eventually forcing a transformation. Under high traffic costs, the solution brands offer is to continuously use the money from financing to buy more traffic and sales, constantly burning investors' money to achieve good-looking data, and then seek the next round of financing. Between brands and capital, founders and investors, a closed loop has formed where GMV drives financing. Burn money - boost GMV and repurchase - create data - finance - burn money Use new round money to fill the hole from the previous round, new money for old debts. When the books are opened, they show ugly losses. As a result, the path to capitalization for new consumer brands becomes even harder. The listing that institutions pursue becomes increasingly difficult to achieve, which also makes capital lose confidence in brands that overly rely on traffic. New consumption has entered the second half. Capital was the first to sense the coming storm and has become calm and rational. After the impulse of early-stage layout and blind investment without due diligence in 2020, capital has gradually seen the true face of new consumer brands: New consumer brands were born from new channels and new e-commerce, but because they rely too heavily on traffic, and traffic costs are rising daily, these online-channel-dominated brands have relatively low ceilings overall, making it difficult to capitalize later. Compared to single brands that rely more on online, capital prefers to place its hopes on those that combine channels and brands. For example,喜茶 and奈雪 are both channel-first and brand-second; channels lay the foundation for the brand, and the brand brings new customers to the channel. The current boom in offline catering investment, such as虎头局 and墨茉点心局, is actually an emerging business model that combines channels and brands. In the first half, buildings rose rapidly; in the second half, where should new brands go? In the end, brands themselves should also be more rational, returning from traffic to products, and from marketing to brand. After all, those brands that can be called good businesses first have good products, then play good cards. PS: From September 23-25, 2021, the 2021 (4th) China FMCG Conference, hosted by New Distribution, will open in Shanghai. Some of the confirmed heavyweight guests include: 1. Tao Shiquan, Founder of Jiangxiaobai; 2. Yao Xuhong, General Manager of Meiyijia Holdings Co., Ltd.; 3. Lu Xiuqiong, Global Expert Partner at Bain & Company and former Vice President of Marketing for Coca-Cola China; 4. Chen Xiaodong, Senior Vice President of Nestlé Greater China; 5. Zhang Fujun, President of Lee Kum Kee Sauce Group China; 6. Bi Chaojiao, General Manager of China Resources Snow Breweries (China) Marketing Center; 7. Yang Hongbin, Vice President of Junlebao Dairy Group; 8. Zhang Yipeng, General Manager of Kuaishou E-commerce SKA Brand Operations Center; .... A grand gathering for FMCG professionals—you must be there! Are you "watching" me?