TLDR:
- Chinese consumer startups are facing a fundraising dry spell post-Covid.
- Investment in the sector has plunged by more than 70% to $400 million in the first quarter of 2024.
According to data from research firm Preqin Ltd., investment into China’s consumer startups has dropped significantly in the wake of the Covid-19 pandemic. In the first quarter of 2024, investment by venture capital and private equity firms in this sector fell by more than 70% to just $400 million compared to the same period in 2023. This decline comes after a more than 90% drop in investment in 2023 from a peak of $73 billion in 2018. Investors are now more cautious and are looking for startups that offer great value for money to cater to consumers who are feeling the effects of China’s economic slowdown. Startups that are reshaping their distribution models to offer lower prices or launching innovative products are more attractive to investors in the current climate.
One of the few consumer startups that has managed to secure funding amidst the slow fundraising environment is the discount snack chain MMHM Group. By procuring ingredients directly from producers, the brand is able to offer snacks at prices up to 60% lower than traditional supermarkets, making it appealing to investors. Venture capital firms like Shanghai-based BA Capital are focusing on startups that prioritize efficiency in operations and are able to offer products at lower prices to stay competitive. While Chinese consumers are still willing to spend on quality products, concerns about the future are leading them to seek out better value for their money. This shift in investor focus marks a departure from the trend before Covid, where startups relied heavily on marketing and higher prices to attract funding.
