Interview: Trends in Chinese beauty from the capital side

Win in efficacy, welcome the future. On September 22, The 5th CHAILEEDO Conference on China’s Cosmetic Trends hosted by CHAILEEDO was held in Hangzhou.

Qingsong Fund is an early stage venture capital firm focusing on new technology and new consumer sectors. We invited Mr. Dong Zhanbin, Partner of Qingsong Fund, to discuss the market trend of efficacy products in China with us.

---

Q: We are honored to invite Mr. Dong Zhanbin, Partner of Qingsong Fund, to share with us the trends in the cosmetic industry today. First of all, I would like to ask you what changes have occurred in the investment environment this year compared to last year?

A: I think one of the biggest feelings in this year's environment is the increase of uncertainty, because now in the context of China-US trade and the economic downturn should be said to all walks of life have undergone huge changes. As you can see, basically every industry is now taking survival as the highest ideal. There is a big difference with the previous pursuit of high growth.

As for the capital, the fund in U.S. is actually in a wait-and-see state. Because the U.S. and China trade, including some restrictions on the U.S. market, fund in U.S. for the technology sector basically has a lot of restrictions. But for the original traditional consumer sector, it should be said that in previous years the valuation of this sector and relatively high. Now is the fund in dollar is restrict for technology.

For the consumption, it is still in a hesitant state. So it has caused the valuation of the funds. The frequency of fund in dollars in relatively low this year. In this case, we can see the type of startups also has a great change. The original traditional big consumer can not be attracted funding from many institutions. Some investors even have withdrawn from this area. The feeling of the whole environment is uncertainty, which is very big. It should be said that whether it is investors and some business entrepreneurs, they are now the whole economic confidence is not enough. They may be waiting for some may be better policies introduced. I think this is a bigger problem this year compared to last year, that is, economic growth is limited. People's confidence is not enough. Period.

Q:What aspects do you personally focus on when you invest in beauty brands?

A: I should say that there is a macro logic based on our judgment of the people, or a judgment of the project. I think this is a general rule. To put it simply, for example, for people, we may focus on the basic ability of the founder. Whether he has good learning ability, execution ability, communication ability, including the founder's internal state, the motivation of the venture, the degree of dedication in the process of the venture, and his ambition. I think this is the most general concern for the founder.

For this end of the project, which involves beauty, we may add some specific information related to the industry. As for beauty, we may choose some targeted market first, for example, for the mass users of some more rigid needs. For example, he is concerned about whitening and wrinkle removal or some other needs. It should be said that the user has pain points, which means that we do not need to educate the market because the share of the market is large enough. This is the market.

Then we will pay attention to the degree of innovation of this product. Whether the product presents the application of a new technology or a specific function. I think these are very critical. If it is just a mix of some ingredients and do not have too much differentiation concept. I think it is difficult to success. The product should be differentiated. It is best to be disruptive of this innovation. I also think that the entrepreneurial emphasis on the threshold. Before that, cosmetics may be more to see the marketing capabilities. Now the product itself is also very concerned about the barriers, that is, there are technological barriers, or some others difficult to exceed the place.

I think these are the points that are different from the general products in cosmetics

Q: What do you think will be the characteristics of the next innovative Chinese beauty brands?

A: As far as we can see now, I think there are several major changes.One is the stronger technological attributes. Under the current environment, investors actually have higher requirements for the selection of the goal. As for the barrier, I think more is reflected in the product's technological attributes.

Now the whole investors are concerned about the technology sector, that is, we will see more called bio-engineering. Such technology like synthetic biology began to apply to this cosmetics, health products and even more field. So these directions are at the forefront of some of the more cutting-edge places. For the whole cosmetics sector, I think it will inject new vitality. So relatively speaking, the threshold of research and development will be much higher than before.This is the piece of technological properties.

Secondly, I think there will be some high-end cosmetic brands in China. We can see that the previous cosmetic products may have started to break through online. But basically the price of the products are in the range of several hundred yuan.

Prices are very overlapping, so it causes the market to be very competitive. But in this year's environment, the cost of online traffic is already very high and it looks very difficult to break through simply from online. So I think that on the basis of better ingredients, better ingredients and more effective ingredients, there will be some high-end products in China that may cost thousands of yuan per unit.

This is a relatively blue ocean. Because these are basically occupied by some large brands in Europe and the United States. I think That may not necessarily appear in the next three to five years, but in the long run will certainly appear China's own high-end brands, this is the brand of high-end such a trend.

The third point I think is actually the emphasis on natural plant ingredients. Because of the development of synthetic biotechnology, we may be able to find some better natural ingredients, because natural ingredients have already occupied the minds of Chinese people, that is, they do not need to educate the market, for example, we say that ginseng soap, which we all know has very good health effects, so that some similar extracts from natural plants, and even modified some plant I think the ingredients will be more and more recognized by people and bring a bigger market.

Q: In the past two years, efficacy skincare has become a popular market, what do you think are the trends in the efficacy market?

A: For the efficacy, I think the first point is that we should emphasize quick effect. Because in fact, we started to emphasize efficacy from the previous few years. If we ask users to use a product continuously in the next year, eventually it will have some effect. But this process is very painful or difficult for consumers to persist. So I now feel that the efficacy means that the users can see the effect in one month or three months after using the product. This requirement is actually not very high.

Because in fact, from some clinical tests, many products may bring some significant changes at the stage of one month. But for the user, for example, the use of habits or different methods of use, this may not be exactly in accordance with the experimental conditions. It may be difficult for him to feel such a change in a short period of time, but if he does not feel such a change, in fact, he may have lost during the early period, which I think is very unfortunate.

So from the efficacy to quick effect, I think this is a place to pay special attention to. It may be a good product. But if it can’t let the user see the changes within a month or three months, he will be lost. It is a great pity that it is lost. When it comes to the quick effect, I think there may be a second approach, which is to emphasize this private domain approach. It is to say that these effective users, through a more accurate community operation to activate them to, such as the formation of good habits.

Many brands are helping users to do something like motivation so that you stick to the use their products several times a day. If you complete, you will also receive some rewards.This is actually an incentive for users to form a good habit, which I think is a relatively common change in operations.

And then I think the innovative brands may now put more emphasis on the comprehensive strength of a team. In the past, under the situation of capital promotion, we may place more emphasis on some traffic-powered companies, which have money to invest in marketing and then growth can be guaranteed. But now that capital has become relatively cold. We hope that the team is more comprehensive and does not have an obvious shortcomings so that it may be able to survive the first investment of funds. It may become less dependent on the outside world.

It will become relatively weak, so that comprehensive is what we hope to see is some white horse type of company, that is, the founder already has such experience as a large factory, the strength of research and development is also very strong, or the company finds a kind of special effects we say the ingredients.

Then there is the marketing end, online and offline promotion is also very comprehensive. In the current environment, such team may still be able to win the favor of investors. But compared to the previous dark horse type of company, which may be particularly strong in one aspect and hope to rely on future funding to make up for it, this situation I think will become very rare.