Chinese Consumers’ Post-Covid Pullback Slows Startup Fundraising to Trickle

Once flush with cash, China’s consumer startups are finding themselves in a fundraising dry spell.

Published21 Jun 2024, 03:02 AM IST
Chinese Consumers’ Post-Covid Pullback Slows Startup Fundraising to Trickle
Chinese Consumers’ Post-Covid Pullback Slows Startup Fundraising to Trickle

(Bloomberg) -- Once flush with cash, China’s consumer startups are finding themselves in a fundraising dry spell. 

Investment into the sector by China-focused venture capital and private equity firms plunged by more than 70% to a paltry $400 million in the first quarter from the same period in 2023, according to data compiled by research firm Preqin Ltd. That comes on the heels of a more than 90% decline last year — from a peak of $73 billion in 2018 — Preqin said. 

While a number of investors have stopped placing new bets altogether, the few still writing checks to entrepreneurs have a new mantra when sizing up whether a business will survive consumers’ increasing frugality: Great value for money, a major sell for shoppers who’ve been feeling the pinch of China’s economic slowdown and widespread job cuts. 

Some are focusing on funding startups who are reshaping their distribution models to offer lower-than-market prices — or others who are launching innovative products and upgrading the quality of their ingredients to coax shoppers to part with their money. 

That’s a sea change from the fundraising heydays before Covid that saw investors pile into startup stars peddling 800 yuan ($110) yoga classes or 66 yuan ice cream bars, mostly via slick marketing. A number of those brands ended up pricing themselves out of the market during the post-pandemic slowdown. 

“A few years ago, you could get funded by just by having a creative idea. Now, that very limited capital will only go to founders with solid skills and backgrounds,” said Zhang Ye, founder of Beijing-based Cyanhill Capital, an early stage investment firm focused on China’s consumer sector.


Discount snack chain MMHM Group is one of the few consumer startups that’s managed to get funding so far this year. The brand cuts out middlemen by procuring its ingredients directly from producers, enabling it to price snacks for up to 60% less than traditional supermarkets — and winning it continual backing from investors.

One of its main backers is Shanghai-based BA Capital, which led a 150 million yuan fundraise in 2023 for snack chain Zhao Yiming, before it merged with a rival to form MMHM. This year, BA followed up with a fresh investment in MMHM, which operates mostly in China’s booming lower-tier markets. 

BA’s investment underscores venture capital’s growing hunt for startups whose operation efficiency allows them to undercut their peers, along with its more traditional focus on companies targeting Chinese who are more willing to spend in the current environment, said the firm’s founder and partner David He.

“When the economy comes under pressure, we definitely have to focus more on efficiency-oriented firms,” He said.

Investors argue that while Chinese consumers are still shopping for quality despite the slowdown, uncertainties about the future can limit just how much they’re willing to pay.

“Good value for money doesn’t mean a consumption downgrade, but rationalism. It no longer works to charge an unrealistic price like consumers are fools,” said Cyanhill’s Zhang. 

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First Published:21 Jun 2024, 03:02 AM IST
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