Chinese Venture Capital Firm Thrives in Niche Consumer Markets Amidst Economic Challenges
BA Capital thrives in niche consumer markets despite economic challenges. The firm focuses on local players and efficient operations to offer affordable goods. Chinese consumers are increasingly valuing emotionally significant products.
However, Shanghai-based venture capital firm BA Capital is defying the odds by focusing on niche sectors and finding growth opportunities despite the overall economic weakness.
BA Capital, known for backing China's "blind box" toy franchise Pop Mart and jeweller Laopu Gold, is strategically identifying promising firms in China's smaller cities and exploring opportunities in the "nighttime" and "silver" economies, as well as revitalising traditional brands.
Founder Michael Zhang Peiyuan highlighted that consumer businesses can excel by focusing on either experience-driven or efficiency-driven strategies, aiming to reach the pinnacle in one dimension.
Established in 2016 by David He Yu, former strategic investment head at ByteDance, BA Capital has managed to navigate the challenging consumer market landscape. While the pandemic has impacted consumer spending, BA Capital has managed to grow its funds to 10 billion yuan (US$1.38 billion) by tapping into niche areas.
One of BA Capital's recent investments is Kaida Hengye, a frozen French fries and crisp supplier, which received significant funding. The firm's success lies in identifying local players gaining ground over foreign brands in the consumer market and supply chain.
Zhang emphasised the importance of enhancing efficiency and lowering costs to offer consumers affordable goods without compromising quality. Chinese consumers are increasingly valuing items with emotional significance, as seen in the success of brands like Jellycat and Pop Mart.
Pop Mart, known for its collectible toys in "blind" packaging, reported substantial revenue growth, reflecting the trend of consumers seeking unique and emotionally engaging products. The company's overseas revenue has also seen significant growth, with shares soaring this year.
Zhang's strategy focuses on consumer-focused businesses with healthy cash flows and leveraged capital to drive growth. While IPOs are a preferred exit strategy, other options like dividends, mergers, and acquisitions are also considered for potential returns.
BA Capital thrives in niche consumer markets despite economic challenges.
The firm focuses on local players and efficient operations to offer affordable goods.
Chinese consumers are increasingly valuing emotionally significant products.
Source: SCMP