Chinese internet giants turn investors, back consumer brands

Cash-rich internet firms betting on millennials for fast-growing sales

In the span of just a few years, internet giants in China have begun morphing into investors themselves.

From Bilibili to Pinduoduo, the once capital market darlings are busy funneling money into an even newer genre of digital-native, contemporary consumer brands, which are growing in appeal among younger generations.

Cash-rich internet companies are betting on these millennial-focused, direct-to-consumer, or D2C disrupter wannabes, which are typically more adaptive to China's constantly changing consumer preferences, according to market observers.

Consumer-sector startups, including healthy beverage player Genki Forest and KKR& Co-backed dairy producer Adopt A Cow, have been drawing more funding－about $62 billion since 2018, according to data provider Preqin Ltd.

In a similar vein, milk tea maker Heytea secured the latest round of funding by existing investors such as IDG Capital, Sequoia China and Tencent－an all-star lineup in the Chinese and China-related global investment scene.

Data tracker Tianyancha said Tencent has made 16 significant investments in the past three years, with disclosed amounts topping 13 billion yuan ($2.01 billion). These include skincare play Perfect Diary and mobile workout app Keep.

ByteDance, parent of short video app TikTok, is sparing no efforts in its investment strategy. The first half saw the internet firm invest in 15 startups, double the number all of last year, said Fanhe Caijing, a new media portal focused on venture capital trends in China.

These D2C brands are becoming perfect investment destinations because success is deeply rooted in connectivity－with consumers connected with products through digital and social channels like mini programs－and have an ecosystem built to generate growth from consumer data and supply chain agility, said Laura Liang, chief strategy officer of advertising firm DDB China.

"D2C will extend beyond being just a type of brand or business model and become a way of thinking about business for every brand, marketer and entrepreneur. Most are no longer satisfied to be just a 'niche and chic' brand－they want to keep innovating to become something more," Liang said.