Consumption-oriented Chinese investment management firm Tiantu Capital made headlines in August this year when it roped in Nestlé as the cornerstone investor of its debut, dollar-denominated venture capital fund.
This was significant as Nestlé’s $30 million investment was its first in a China-based fund; it was also the Swiss food & beverages major’s first in the Asia-Oceania-Africa (AOA) region, Tiantu claims.
The fund secured $80 million in its first close.
Even as Tiantu’s USD fund, which is targeting $150 million, is still in its final stage of fundraising, it is working closely with Nestlé’s to boost the consumption business ecosystem in China, especially in the food & beverages segment. The two plan to invest $3-20 million per transaction in the space.
“Food & beverages is one of our principal businesses, and we also see that China’s market size in the segment in the past 5-10 years has clocked [positive] year-on-year growth,” Pan Pan, a managing partner at Tiantu Capital’s VC team, told DealStreetAsia in an interview.
Apart from food & beverages, Tiantu also sees big promise in consumption areas covering new retail, new lifestyle, and the digital economy.
The 18-year-old Tiantu Capital set up its VC team in 2016, which has made early-stage investments in over 60 startups including JD.COM-backed digital items recycling platform Aihuishou, perfume brand Scent Library, pet provider Crazy Doggy, ice cream brand Chicecream, and digital medical service provider Distinct HealthCare.
Edited excerpts of an interview with Pan:
Tiantu Capital hit the first close of its maiden USD-denominated VC fund in August this year. Could you share more details on the fund?
We launched our first USD-denominated VC fund last year with a target to raise $150 million. When we made our first close in August, we collected $80 million from existing limited partners (LPs), family trusts, listed companies, and entrepreneurs, among others. In addition, we also roped in Swiss food & drink processing giant Nestlé as a cornerstone investor. The European company invested $30 million. The fund is expected to reach its final close in April 2021.
It is Nestlé’s first investment in a fund in China. How did Tiantu attract the investment?
Since our inception, we have been committed to the new consumption sector in China. Food & beverages, beauty and skincare, and pan-healthcare are among our top focuses. As a global food & drinks conglomerate, Nestlé has a strong presence and interest in the niche segments that we are in.
What’s the nature of the strategic partnership between Nestlé and Tiantu?
More than working together on startup investments, Nestlé also expects to leverage in-depth industry analysis and conduct acquisitions in a bid to advance its supply chain and competitive capacity.
What are the opportunities and challenges Tiantu sees in the Chinese market? Will the investment in the F&B sector be the driving force for a wider partnership with Nestlé?
One of the biggest opportunities is that industries in China are evolving driven by new generation technologies, while the challenge is in the rat race in business in and out of China. For us, it’s also not easy to pin our hopes on startups in their very early stages.
We observe that the coming five to 10 years will be a golden age for Chinese local brands, that will grow to international brands. When it comes to the F&B sector, the partnership with Nestlé will be beneficial to our portfolio startups’ global expansion. However, we can’t conclude that it will be our next biggest revenue growth.
How about opportunities in other consumption sectors?
Overall, China is a huge market where tremendous demands are unmet. In other words, opportunity belongs to those who can touch it. Tiantu along with US UpHonest Capital collectively pumped ‘millions of US dollars’ in Chinese mock-meat brand Hey Maet’s seed and angel rounds in August this year. Besides, Tiantu exclusively invested in meal replacement brand WonderLab in January last year.
Could you take us through the investments this year? Any prominent portfolios in consumption?
In terms of VC projects, we have invested in about 30 startups. In October, we partnered MatrixPartners China and Gaorong Capital to infuse nearly 100 million yuan ($15 million) for baby care product brand bebebus’ Series A and A+ rounds. In September, we teamed up with Sequoia Capital China seeding a similar-sized Series B round funding in boutique coffee brand Saturnbird Coffee.
We have seen some portfolio companies surging dramatically, such as fresh fruit brand Shenzhen Pagoda Industrial (Group) Corporation, cheese tea bakery cafe Nayuki and tea chain Sexy Tea. In addition, some of our successful exits include Hong Kong-listed Chinese food brand Zhouheiya and private-owned medical service provider Phenix Healthcare Group. Overall, we have got 20 times in returns.
Has Tiantu seen any consumption shift in China over the past few years? What will change in the near future?
The key consumption shifts we’ve seen reflect in three aspects. First of all, many investors show a better ‘appetite’ to the field than before. Secondly, USD funds from overseas will start to invest in China’s consumption industry. Thirdly, those in synergy with healthy living and wellness are more sought-after leading to fierce competition among investors.
We also predict that trends are likely to appear in two other ways — new brands will emerge like bamboo shoots after rain, and Chinese local brands will go global.
We’ve also noticed that investors’ interest has shifted from daily necessities to food and drinks. What does the future hold?
First and foremost, I am sure that brands that highlight health will boom.
What’s your forecast for China’s consumption market? And what are your business plans?
We think the China market will keep its strong surge as enormous consumption demands are unmet. As a matter of fact, we don’t have concrete plans except to further support the industry. We will achieve our goals if we can help two or three Chinese brands go global.
Does Tiantu have any plan for market expansion?
We don’t have an exact timetable for now, we are looking at regions like India, Southeast Asia, and even the Middle East.