Challenger Ventures invested in Alexander Wang, but says consumer spending could still get colder

By Muxin Xu

Edited by Jing Liu

On September 5, Alexander Wang, the eponymous brand of Chinese-American designer Alexander Wang, announced investments from Challenger Venture and Youngor Group. Though described as a "minority equity investment," Anyong Waves has learned exclusively that Challenger Venture's stake post-investment exceeds 20%.

From Challenger's perspective, this investment came about somewhat fortuitously. In July of last year, Zhou Hua, managing partner and CEO of Challenger Venture, spotted news of an Alexander Wang store opening through a friend and quickly inquired whether there was an investment opportunity. After receiving an affirmative response, his team immediately reached out to Alexander Wang founder Alexander "Alex" Wang. Due to pandemic-related travel restrictions, the two sides have only ever met via video call — yet this didn't prevent Challenger from making its investment decision.

Anyong Waves has previously discussed mid-to-high-end fashion brands with multiple consumer investors. Most agreed that viable targets on the market are actually quite limited: either the brand power has been chronically underwhelming, or there simply aren't opportunities for external fund investment. Zhou Hua shares this view. In an interview with Anyong Waves, he said, "An opportunity like (AW) is truly rare."

In fact, unlike a typical new share issuance, the equity for this investment came primarily from AW's existing shareholders.

Over the past decade-plus, Chinese companies and funds investing in or acquiring overseas brands has been fairly commonplace, though strategies have varied considerably. Hongshan, for instance, invested in Holzweiler and WE11DONE through mergers and acquisitions, while IDG Capital took minority stakes in Gentle Monster and Moncler. Shandong Ruyi Group directly acquired SMCP, bringing轻奢 brands like Sandro and Maje under its umbrella — though this later proved to be a cautionary tale of overreach.

Challenger's approach with AW, however, is purely financial. "We'd most likely do a poor job running this brand ourselves. The best approach is to give him the money and provide only the help he needs," Zhou Hua emphasized.

Founded in 2014, Challenger Venture is a dual-currency fund with cumulative assets under management of RMB 10 billion. Its strongest external association is undoubtedly its founder, Tang Binsen of Genki Forest. This seems to confer an inherent advantage: greater industry background and resources. As managing partner and CEO of Challenger Venture, Zhou Hua has two prior entrepreneurial experiences under his belt and has also done personal angel investing.

His experience in the advertising industry gave him exposure to numerous seasoned entrepreneurs, providing invaluable experience for his current investment work. Combined with the oversight of Tang Binsen, himself a successful entrepreneur, Challenger's investment team carries a rather confident label: they dare to make decisions on whether to back a founder within a short timeframe.

Regarding the full story behind the Alexander Wang investment, Challenger Venture itself, and the current new consumer investment market, Anyong Waves sat down with Zhou Hua. Here are his core perspectives.

What Is Alexander Wang, If Not Just Clothing?

1. This investment came about quite by chance. Around last July, someone in my WeChat Moments shouted out that Alexander Wang had opened a store at Shanghai IFC. I asked a friend for an introduction to Alex. Due to pandemic restrictions, we've never actually met face-to-face to this day — it's always been video calls — but he still left a deep impression on me. What struck me most was his transparency. I asked some fairly pointed questions, and he answered them all without evasion. He's not the pure artist type — we know artists tend to have strong personalities — he's very pragmatic.

2. Another reason this investment was fortuitous is that the opportunity itself is genuinely rare. A mid-to-high-end consumer brand with AW's level of brand influence, cash flow, founding team pedigree, and actual investment availability is one of very few worldwide.

In recent years, Alex had some disagreements with certain existing shareholders over the company's long-term direction: the old shareholders wanted to cash out sooner rather than later, while he wanted to build the company into something bigger. So this investment is essentially a restructuring of the company's shareholding.

3. While Alex may value our industry background alongside Youngor's, for us this is closer to a financial investment. There are outside rumors that we've acquired the company — that's inaccurate. Though our stake is indeed substantial, exceeding 20%. What we value is Alex's team and the company's operating performance. The way we collaborate is: we give him the money, hold board meetings a few times a year, and otherwise just see if he needs our help — if so, we get involved.

4. Why did Alex choose us? First, the China market is important to AW, accounting for roughly half their revenue. On another level, I think at least one point of alignment is that both Genki Forest and AW are youth-facing brands — we both need to continuously study what young people want. As for whether AW might collaborate with Genki or other consumer brands in Challenger's portfolio down the line, possibly doing co-branded products, I think all of that is possible — it ultimately depends on each party's business development needs.

5. AW's valuation isn't convenient to disclose, but I can say it was a reasonable price. At the end of the day, any investment comes down to price, and price is sometimes the best risk control. For a company like AW with solid operations, as long as nothing goes seriously wrong going forward, you can actually generate returns just through dividends.

6. Currently AW does over US$200 million in annual revenue globally, but this is just the beginning. Many people still understand AW as a clothing brand today, but that's only temporary. Alex is confident he can build AW into a global lifestyle brand, extending into more categories and nurturing more designers. He himself is gradually de-emphasizing his personal brand.

"What Not to Invest In" Matters More Than "What to Invest In"

7. Compared to "what to invest in," what we need to clarify more is "what not to invest in." Internally we call this consensus management — we reach consensus on certain sectors to avoid, so there's no need to even look at them.

8. Challenger can move quite fast on investment decisions in certain areas. If we're agonizing over something from the start, we most likely won't end up investing. We want to understand the reasons for hesitation at the research stage, then follow the map we've drawn — by decision time, there's no need to agonize.

9. Many investors try to summarize a replicable investment profile or methodology, but we feel that much in this world simply has no methodology. For example: why do humans have to have two nostrils, why are our eyebrows black? These may simply have no logic to them — you could spend forever without deriving any fixed pattern, and we rarely spend time on research that won't yield results.

10. This year many consumer funds like to layer tech semantics onto consumer logic. Technology matters to any industry, but for our industry, technology ultimately still has to land in consumption. Is alternative sugar technology? Is putting bubbles in water technology? These are all manifestations of technological progress — they're all tech.

11. Consumer goods is an industry with a long history. After centuries of development, consumers' basic universal needs have long been met. Coca-Cola has 130-plus years of history, P&G over 180, Wahaha and Nongfu Spring nearly 40 — this shows that some of the more valuable industries have already been thoroughly studied by major companies.

And sectors where historically no large companies have emerged are unlikely to present opportunities now. "Challenging the giants" is one of our core investment philosophies. Following this logic, you must go to large sectors to capture opportunities. That is, with universal needs already met, we look at whether great companies have historically emerged in the sector where a potential portfolio company operates.

12. I prefer historical stories to science fiction. What most impressed me about M Stand at the time was that without having raised a single cent, they relied on store profitability to roll forward, opening ten locations in just over a year with several million in profit. That already beats 99% of startups. When we make investment decisions, we focus more on company data, on its historical development, on the founder's state — this makes decision-making easier. If you're just listening to the founder tell lots of stories, sometimes you're actually wasting time.

Consumer Investment Could Stand to Get Even "Colder"

13. The consumer sector was too hot in the past two years, which actually prevented many founders from being allowed to think long-term. When four similar companies are all frantically raising money, investors "force" you to chase GMV, believing that GMV brings everything. By this logic, a company with ten million GMV is simply better than one with two million. This pushes some founders to desperately livestream, subsidize, even fake orders.

So the current environment is what consumer investment's normal state and essence should actually look like. Honestly I still think it's a bit hot even now — it could get "colder" still. Many company valuations haven't returned to reasonable ranges; there could be more rationality. If an industry has too many speculators who all want to come in, "play" for a bit, and leave, without a long-term spirit, that industry's ecosystem gets destroyed.

14. I previously worked in the advertising industry, and that experience has been very helpful for my current consumer investing. I've met many successful consumer industry entrepreneurs, and they share certain traits: sufficiently grand vision, simplicity, sincerity, and constant vigilance against complacency... This experience gave me "samples" of successful entrepreneur characteristics, which helps in identifying whether founders possess certain traits today. On an intuitive level, for instance, I may quickly sense whether someone has "the look of a winner." This feeling may be hard to describe — it's like when a girl sees someone and wants to marry him, that person may simply be the right one, without necessarily being able to articulate why.

15. Finally, I want to emphasize: despite how much quieter consumer investing has become, this is still the cycle at work. We continue to believe that in the coming years, among the top ten brands globally in various细分 categories, at least three will be Chinese brands.

Image source | Visual China

Layout | Yunxiao Guo