Headquartered in Shanghai and Taipei, SKS Capital is a personal fairness funding agency that has labored with quite a few manufacturers throughout Asia. Based by Kuei Chen in 2017, the corporate is consistently looking out for burgeoning manufacturers that want that additional assist in increasing their operations.
Nevertheless, Chen has strict tips in choosing the right manufacturers to spend money on. For Chen, it’s pertinent that the manufacturers he works with have nice storytelling and possess a human side in order that no matter services or products bought is significant.
Are you able to inform us extra about SKS Capital, its heritage, and the way have it has developed from a household workplace to a Normal Associate? Additionally what impressed you to create the corporate?
To find out about SKS Capital, let me share the historical past of our roots. Since 1960, the household enterprise over the previous two generations was magnificence packaging. It began with my grandmother who designed the unique matte black of MAC cosmetics, which remains to be the principle product line to today. She designed the color with the 2 unique Canadian founders earlier than they bought the corporate to Estee Lauder.
When my father took the helm, he was the primary to determine an abroad workplace to cater to manufacturers like Helena Rubinstein, Guerlain, Estee-Lauder, Shiseido and plenty of extra. Whereas my mom, on the eco-side of issues, developed the primary fashionable paper lipstick with Mary Kay twenty years in the past and different manufacturers like Crazylibellule quickly adopted. We went from producing mass-market cosmetics to designing and setting packaging tendencies with luxurious manufacturers.
As you possibly can see the entrepreneurial gene runs deep in our household, and as time goes by, the merchandise and clients we work with have change into extra refined and splendid. We bought our firm again in 2012 which allow us to transition from manufacturing ODM/OEM to household workplace after which to a full-fledge funding enterprise firm with investments from restricted companions.
I feel in our technology we are attempting to take it to the subsequent stage, utilizing our trade information and profiting from Asia’s rising client sector.
I’ve the inspiration to spend money on Asian-made manufacturers. Not are we the technology of counterfeits. Manufacturers are starting to search out their very own DNA and having the ability to determine native customers with rising buying energy. SKS wish to be on the forefront of enterprise capital (VC) that invests in luxurious manufacturers and assists them in transitioning from mass-market identification to status.
What benefits does SKS have coming into this trade?
Once I take a look at the VC scene in Larger China, I typically really feel an enormous disconnect between buyers and the patron manufacturers they spend money on. I really feel the manufacturers lack correct illustration of buyers that align with their values and perceive what the founders are attempting to perform, whether or not it’s sustainability, distinctive product differentiation, or coming into new international markets. Apart from simply capital, most non-public fairness or enterprise capital corporations in Larger China or APAC typically fall wanting that. Being a millennial myself we share the identical core values with the manufacturers which can be rising within the highlight.
I really feel there’s ample alternative out right here, I can actually relate to the founders and agree with the corporate messages since we’re from the identical technology and on the identical mission to unravel issues which can be handed all the way down to us from earlier generations. I really feel many funds in Asia (with just a few exceptions) are generalist or add little or no worth to corporations and the entire client ecosystem.
To know the patron trade, it comes all the way down to basically understanding folks. Whereas most manufacturers are catered to customers of my technology and Gen-Z, and to place it bluntly, most enterprise funds in Asia are run by 60-year-olds attempting to spend money on manufacturers for the 20-year-olds. Utilizing an analogy, it looks like after we have been rising up our mother and father have been attempting to decorate us within the garments they thought have been “cool”.
Briefly, what I’m attempting to say is, my inspiration for creating SKS is that I feel it’s our time; we’re lastly of age to spend money on the manufacturers we grew up with, that determine with us, and that characterize us.
What tendencies and alternatives do you see within the Larger China market? And what has modified over the previous few years?
China’s magnificence consumption is large. It’s a 79-billion-dollar trade, and market stories point out the market will double by 2025. The sweetness market grew by 29.9 per cent in the course of the first half of 2021, and millennials and Gen-Z accounted for 69 per cent of that development. We’re positively investing in the precise market.
Within the subsequent 5 years, we’ll begin to see a consolidation inside the trade, from the rising complexity of the native market, quick product life cycles, and types adapting to client behavioural adjustments. All that is thrilling information to us enterprise capitalists and Company Enterprise Capitalists (CVCs).
We started to see VC {dollars} pouring into the patron sector. I don’t assume buyers or founders have gotten the method proper, to succeed and change into a family model. For buyers, it’s a race to see whoever can spot the precise manufacturers and produce the precise value-add. We wish to be on the forefront of that practice wagon, via our expertise, distribution community, and strategic restricted accomplice that invests in us, we’re capable of help promising manufacturers and elevate them to a different stage of development.
The sweetness market in China appears very promising, however there’s its draw back and complexity. Are you able to clarify what challenges you assume the sweetness manufacturers are dealing with in Asia?
In response to Mandy Li, founding father of HBG a number one branding advisor company, “the typical life expectancy for magnificence manufacturers is 4-6 years.” I feel that’s the problem, investing in rising manufacturers and seeing them disappear in just a few years. One other fascinating piece of truth is that among the many high 20 magnificence conglomerates on the planet, none are from China or Southeast Asia.
I feel the pattern now could be the rise of home manufacturers and its vertical integration. To have the ability to escape the herd and emerge as a winner, it can finally come down to 3 key differentiating components:
- Product high quality and model consistency
- Capability to penetrate international markets to extend model life worth and
- Having the precise monetary backers to assist a workforce of formidable and gifted new technology of founders
We expect we’ll see that taking place within the subsequent 5-10 years. To return again to your query, I feel the problem we face is convincing native manufacturers to go abroad and never simply trying on the home market. Historical past proves that native manufacturers life expectancy is often 4-6 years however if you wish to improve your model life worth it’s essential to have a worldwide presence.
That is the place SKS involves play. With years of expertise serving international luxurious manufacturers and having an understanding and community of abroad distribution like Korea, USA, Larger China and Europe, we wish to work with founders to develop a long-term technique for worldwide development by upgrading their packaging and formulation. For instance, it’s straightforward so as to add perfume to your skincare, however what does that scent symbolise? Does the perfume present a novel feeling, or a way of heat, the sense of scent is extra than simply candy or dry?
Having a novel positioning creates a stronger model picture and will increase premiumisation wanted to foster worldwide development. Once we take a look at home manufacturers in China, our angle is a bit of bit completely different from our VC rivals. Not solely can we take a look at manufacturers that scale rapidly in China, however we additionally ask ourselves may this model work abroad.
Apart from magnificence, what different sectors do you take a look at? Is there one specific funding that stands out?
I moved to Taiwan in 2013. I bear in mind being launched to a sequence known as 八方云集 “8 Means” — which is a pot-stickers and dumplings QSR (quick-service restaurant) chain. It was nice consolation meals that I’ve on a month-to-month foundation.
We have been fortunate sufficient to fulfill the founding relations. They have been from humble beginnings, and so they shared very comparable values with SKS. We actually liked their franchise mannequin that even being massive that they had robust neighborhood values. The founder supplied many alternatives for workers to change into small enterprise house owners themselves by decreasing the franchise setup value to solely US$3,000.
For those who don’t have the cash, it’s okay, 8 Means company has a mortgage program that may assist finance new retailer places so long as you’ve working expertise in 8 Means, in order that approach you perceive the tradition. 8 Means solely elevated their meals procurement value as soon as previously 18 years. I bear in mind the founder mentioned, “for a franchise to work, you’ve acquired to think about methods to make the franchisee earn cash”.
One among our companions’ moms ran a preferred beef noodle restaurant in Suzhou, China, that was an enormous hit with the locals. She by no means had plans to broaden however being an area favorite, it needed to be of high quality. The founding father of 8 Means determined to make use of her recipe in considered one of their 100 fast-food chains known as “梁社汉” or “Liang Shi Han” as a result of the recipe included the distinctive spices and slow-braised beef which creates a multi-layer of thickness and style to the soup. It gives an extra luxurious contact to their menu.
Once we heard this, everybody within the workplace was so touched and this could’ve by no means occurred if we didn’t know the founder on a private stage and shared the identical ardour for meals. I feel my accomplice’s mom felt actually honoured to have her recipe lastly handed down and shared with extra individuals who can take pleasure in it. It was a win for each of us. A uncommon value-add creation from SKS by offering recipes in the direction of Liang Shi Han’s model. In doing so SKS and eight Means actually cultivated a deeper relationship after we labored collectively. I don’t assume many VCs can share tales like this one.
If you find yourself evaluating manufacturers starting from wellness to magnificence and meals franchises, what are some qualities you look out for?
Understanding the founder’s worth and mission assertion is a major first step. We often see if their message is constant all through their product, digital marketing campaign and if their workforce shares the identical virtues. Then comes the merchandise; we dig a bit of deeper by understanding how the product matches the market, who’s the model targetting, and the way are they targetting? How is the product completely different from what’s on the market? Is the product that the model is providing crucial? Why would they purchase from this model? Does the product have a again story that resonates with their clients and in the end matches into the corporate’s theme?
As a result of we’re within the enterprise of investing in folks. As a result of these two major components, we are able to decide how good the founder is and the way really passionate they’re about their enterprise. It’s envigorating if the enterprise has a synched message and a extremely cool product that we might wish to purchase ourselves.
Earlier than you spend money on an organization, you will need to set up belief with the founder. How do you then construct belief with them?
It’s difficult if you find yourself assembly the founders for the primary time. I’ve had conferences the place the monetary advisors advised me to not even discuss their enterprise in our first conferences. The primary assembly is for founders to judge the buyers to see if they’ll relate, have the identical curiosity and values.
However most conferences come all the way down to this: on the one hand, you need to present that you’re an professional in your space, somebody with an unlimited community and might present worth; however however, you might be assembly the founder for the primary time, and also you don’t know their enterprise like the best way they do. So I feel you have to be all ears and are available in with a curious perspective and attempt to actually perceive the place they’re coming from and the rationale behind their motion every step of the best way.
The primary half is simple, however successful belief can’t be finished via presenting numbers. I feel one must be humble, as a result of we’re coming in as an outsider to their enterprise which was constructed with blood, sweat, and tears. I often attempt to relate with my household expertise as a result of our household is stuffed with entrepreneurs.
We all know how treasured it’s within the minds of founders. Via our interplay, they’ll really feel our dedication to constructing a long-lasting model and our ardour for his or her firm. This helps to skip the surface-level protocols and get into the significant and private targets actually quick, and by the tip of the assembly, we find yourself attending to know them at a extra private stage than after we began.
What’s your favorite a part of managing SKS Capital?
Speaking about branding, whether or not the model has years of historical past and attempting to reinvent themselves or a KOL desirous to co-work with us to launch a brand new product. It’s all the time fascinating speaking to them as a result of it’s the place actual real dialog occurs. They don’t look to us for funding however actually attempt to alternate concepts and to see what can work and what can’t. The quite a few rounds of partaking with the various founders on their imaginative and prescient have helped us actually perceive the customers from a distinct angle, not simply the VC angle.
Now we have all kinds of individuals coming in, from KOLs who need artistic packaging options, on-line magnificence enablers and distributors discussing the long run pattern of manufacturers, to second generations coming again dwelling to take over their household’s helm and desirous to reposition the model whereas not dropping its heritage. I feel all of it’s thrilling. We name on everybody within the firm at SKS to pay attention and alternate notes with the founders to see the place we might help out.
What are some social duty points SKS is fixing via the investments it makes?
Sustainability. Throughout earlier generations, everybody was centered on accelerating the pace of industrialisation, however it got here at an important value. Sustainability is concerning the model and private values, it’s an perspective and that’s past simply functionality and finance.
Pan Farm is considered one of our investments that cope with sustainability in an efficient and direct approach. This agricultural agency focuses on an innovation method known as Plant Breeding by producing high-quality and high-yield seeds that show pest and illness resistance with out harming the atmosphere. Plant Breeding creates and transfers completely different plant varieties, which additionally makes the vegetation extra resilient to local weather change. This answer in flip permits farmers to extend the productiveness of their harvests.
Lots of people ask us why we proceed to spend money on what I name “manufacturing options,” it’s as a result of I really feel that the manufacturing trade has reworked. Not in a approach the place we produce sooner at lowered prices. It’s extra about fixing the issues that manufacturers are dealing with. Once we be taught extra concerning the manufacturers and their mission assertion, we attempt to design and manufacture in a approach that helps their message.
For a clear magnificence model, we work out how we are able to use ocean waste plastic of their beauty packaging, how can we design a bottle that reduces chemical wastage by eliminating the recent stamping course of that requires foil? We have to determine all of it whereas sustaining a cost-sustainable answer to the manufacturers, and SKS is excited about investing in manufacturing corporations that deal with these sorts of issues.
For extra details about SKS Capital, go to its web site: skscapital.co
Must you want to contact Mr Kuei Chan, you possibly can e mail to this tackle: kuei.chen@sksventures.co
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