China’s consumer upstarts set to enter 10-year golden age: BA Capital’s Michael Zhang

Michael Zhang, partner of Chinese consumer-dedicated venture capital firm BA Capital

BA Capital, a Chinese venture capital firm that exclusively bets on consumer brands and products, is expecting to see the country’s profit-making consumer upstarts become some of the most sought-after portfolios among investors in the next 10 years.

“Our portfolios actually picked up better financial results during the pandemic period,” said Michael Zhang, a partner at BA Capital, in a recent phone interview with DealStreetAsia.

“They have become some sort of ‘risk harbour’ for investment firms as they have high growth [numbers] and positive cash flows. They are more appreciated by investors in the primary market and the secondary market – once they get listed.”

His comments came as Pop Mart, a Chinese designer toy brand backed by BA Capital, has grown into a unicorn at a valuation of over $1 billion. The Beijing-based provider of IP-driven blind box dolls filed for an initial public offering (IPO) in Hong Kong early June, about one month after it raised over $100 million in a round led by Chinese private equity firm Loyal Valley Capital and China Renaissance’s New Economy Fund.

BA Capital first invested in Pop Mart as part of a 40-million-yuan ($6 million) round in 2018.

Besides Pop Mart that is expected to float shares on the city board later this year, the three-year-old venture capital firm also has over a dozen portfolio companies. Earlier this month, BA Capital invested in the 1-billion-yuan ($142 million) Series E round of KK Group, a Guangdong-based online-to-offline new retail unicorn. The transaction made KK Group its fifth unicorn portfolio firm.

In China, consumption was gaining good traction before the COVID-19 pandemic hit the epicentre and threw business activity out of gear. According to the National Bureau of Statistics, China’s Consumer Confidence Index reached a 10-year high in 2019 despite a slowing GDP and its trade friction with the United States.

Meanwhile, consumers in the world’s second-largest economy are proving to be remarkably resilient. Official statistics show that the growth rate of China’s total retail sales of consumer goods is quickly coming around from a record-low negative month-over-month (MoM) growth of 20.5 per cent at the start of 2020. In May, Chinese consumers spent a combined 3.20 trillion yuan ($457 billion), down only 2.8 per cent compared to one month earlier.

Looking forward, Zhang stays upbeat on the consumer industry in what he refers to as the next 10 years of “golden age” for rising consumer brands in China.

The development will be partially powered by domestic operators of major online marketplaces, such as Alibaba and JD.com, who have laid a good marketing and sales foundation for consumer brands. China’s drastically changing consumer landscape and infrastructure will also play a part in it, by giving technology-enabled newcomers an edge to compete with old-fashioned incumbents.

Zhang is a partner and one of the three founding members of BA Capital. Zhang has worked for a decade in early-stage venture capital and private equity investment in the consumer and technology sectors. Prior to BA Capital, he was at Fidelity-backed global venture capital fund Eight Roads Ventures, Asia-focused investment group Orchid Asia, and Deloitte.

Zhang spoke to DealStreetAsia about BA Capital’s investment strategies and how it picked now-unicorns such as KK Group and Pop Mart at an early stage and what he believes is the next entrepreneurial opportunity in China’s drastically shifting consumer space. Below are the edited excerpts of the interview:

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.