Why we invested in Kuai Commerce
Kuai Commerce has raised $2.4m from Playfair, Haatch Ventures, Portfolio Ventures, Unbundled VC and industry angels for its social commerce solution for brands entering China’s $1.7tn ecommerce market.
How it all started
Jonny Plein, co-founder of Kuai Commerce, was introduced to me by Joe Bond at PROfounders (thanks Joe 🙏).
Joe had mentioned to Henrik that he was investing in Kuai personally and thought we should take a look. Henrik identified the company as one I’d be interested in and made the connection.
After the first call with Jonny, I felt that unmistakable tingle of excitement — this was a company operating in an enormous and fascinating market with a team that couldn’t be better placed to win.
When we talk about founder market fit, Kuai is an exemplar. Jonny is a proven startup operator who previously built and exited Pouch, whilst Adam Knight and James Campbell are domain experts in the Chinese ecommerce market, having successfully launched 120 brands into the country over the last decade.
Why social commerce in China
Social commerce — the name given to ecommerce sales made directly via social media platforms — is a relatively new phenomenon. It had a negligible market 10 years ago, but is now substantial.
This is particularly true in China, home to the world’s largest consumer market. Driven by the country’s unique digital ecosystem, social commerce now makes up approximately 13.1% of all ecommerce spending in China and is worth $365Bn. In the U.S., for comparison, just 4% of ecommerce spend is social commerce — around $36Bn. The social commerce market is 10 times larger in China than in the US.
However, it is extremely difficult for Western brands to establish themselves in this market and benefit from incredible potential sales volume, even if there is high demand for their products there. Not only is it thousands of miles from the UK and operating in Mandarin, it has an entirely different technology and regulatory landscape. For all but the largest, most established brands, the time, cost, complexity and risk of failure makes expansion to China an unrealistic prospect.
Search Engine Journal usefully summarises the convoluted steps brands must take to sell into China:
- Understand Chinese consumer behaviour;
- Select the right products;
- Set up local hosting for website (beyond the firewall). This requires a commercial licence;
- Use trusted payment processors;
- Provide excellent customer service;
- Choose the right logistics partner;
- Use the top/correct marketplaces. (e.g. Tamao, Tmall & JD);
- Take advantage of shopping festivals; and
- Promote on Chinese Social networks (WeChat, Douyin).
Right now, brands can try and navigate this alone, or pay a local partner to help them sign up to TMall Global, China’s largest cross-border B2C online marketplace.
All in all, the barriers to entry for small and medium businesses are prohibitively high.
Kuai Commerce’s solution
Kuai is a full stack, full service, tech enabled service that will replace the ineffective, piecemeal solutions currently on offer to Western brands. Drawing on the founders’ deep experience and cultural understanding, Kuai partners with brands whose products suit China’s current trends and demands and helps them launch into the country’s $1.7tn ecommerce market.
As well as shipping, the company handles all marketing, legalities, logistics, back-office and Mandarin customer support. The founders’ experience in marketing Western brands into China — more on that below — helps them spot the brands they think will succeed, and they co-invest with their partner brands by providing them with marketing budgets. The team has strong connections with influencers and their commercial groups, who are crucial parts of this process.
Kuai has differentiated themselves from other providers by moving away from a service based approach of maximising fees to one where they identify and invest in the next generation of cult category leaders, sharing in their success.
Our investment thesis
Entering the Chinese market as an emerging D2C Western brand is today all but impossible. Those that have tried have found current solutions are limited and do not work. The incumbent providers, who operate classic distribution models, are solely interested in selling Western products with an existing search presence in China, at an ultra premium price point.
Solving this will generate massive rewards. The large market, combined with Kuai’s model that provides both ongoing fee revenue and strong margins, mean that revenue growth can be very significant. The sheer size of the Chinese population enables brands to grow to tens of millions of revenue very quickly.
With anaemic growth in consumer spending expected in the West, focusing on an overseas market will help generate differentiated returns. We have considered the implications of rising geopolitical tensions, but feel, given the size of the market, this is a risk worth taking, and that it is reasonable to assume that the Chinese and the West want to avoid a conflict that would be economically damaging.
From a cultural point of view, few teams would have the same level of expertise and knowledge of the West and China. From a technical point of view, there is lots of know-how and a clear vision for exactly how to build the Kuai tech stack to create a full service offering to the brands that want to work with them.
This is an impressive, detail-oriented team who are passionate about China, have spent significant time living and working in the country, speak Mandarin, and couldn’t be better placed to understand their market. They are keenly aware of the competitive landscape, the key players, and their positives and negatives.
Before coming up with the idea for Kuai, James (tech) and Adam (brand) founded a successful agency, TONG, in 2014 which has helped more than 120 Western brands launch in China, and currently employs 40 people. Jonny (ops & finance) started his career as an accountant at Ernst & Young, before founding and selling Pouch, a browser extension that helped surface the best discount vouchers, back in 2019.
The three of them met at a UK China Trade Day Jonny ran at Ernst & Young, which led to a long standing relationship that has included Jonny trying to invest in TONG (they said no), subsequently advising them on an acquisition offer for TONG (they said no based on Jonny’s advice), and ultimately coming up with the idea for Kuai.
Kuai can best be thought of as a platform that connects all the required components to move goods to China, promotes them, sells them and handles customer support. It has the ability to run storefronts on 100+ marketing and ecommerce platforms.
Chinese consumers browse their favourite social platforms much like we browse Instagram or TikTok. When they see an influencer using a product that piques their interest, they click through to find out more. They will be taken to a social commerce storefront within the social platform, where they can complete product discovery and make a purchase. The backend sales and logistics dashboards will be used by the brands to monitor sales and the Kuai team to manage logistics.
The team has honed in on the rapidly growing ‘clean beauty’ trend, driven by Millennials and Gen Z, as the first target market, and will select four brands to launch with. For a pre-seed company, Kuai is attracting a remarkable level of interest from companies hoping to be selected.
There is a high demand for clean beauty products in China, but strict laws requiring animal testing for all Chinese beauty products limit their domestic availability. The retail trade revenue of cosmetics in China grew from £9.2Bn in 2009 to more than £42Bn in 2020.
This is just the first category they are looking to go after, and plan to expand into others with numerous brands.
A personal note
As an investor, I am constantly learning and trying to improve.
Kuai is one of those investments that taught me a disproportionate amount and provided a timely reminder of what VCs are meant to do — take risk. Not silly or lazy or ill-informed risks, but risks that are carefully considered through an efficient and disciplined process, and balanced against the potential reward. This is something Jonny understood extremely well and conveyed to me mid-way through our discussions when I emailed him to say that I was passing. For the first time I can remember, a founder made me do a 180. It was that impressive!
My pass email contained eight key risks. Jonny asked for a call to get some additional feedback. Of course I agreed and jumped on with him and James to see how I could flesh out what I had written to help them with the round. As soon as the call started, Jonny said that he and James were there to change my mind. I was a bit taken aback, but I sat listening to them take each key risk and explain how they mitigated them in forensic detail. Most arguments were backed up by impressive levels of research and data that showcased their expertise in the market and the fact they had, at least at this pre-seed stage, thought of everything. Those that couldn’t be backed up by data, were convincing as a result of a potent mix of experience, clear passion for what they are building and a sense of never ending persistence (evidenced by believing they could make me change my mind in the first place!).
Back on track, we wrapped up our own research and investment memo quickly, took the opportunity to IC and made an offer to lead the round.
If you’re a brand looking to access the Chinese market, you can reach out to the Kuai Commerce team directly here: https://www.kuaicommerce.com/
If you’re a founder at the very earliest stages of building your company, you can pitch the Playfair team here or find me on social (LinkedIn, Twitter, Instagram).
You can follow the Playfair team on LinkedIn, Twitter, Forbes, Vimeo and here on Medium.