Being a venture capital investor in China's consumer sector right now? Not exactly a winning formula. Just ask Tian Tu Capital Co. Ltd. (1973.HK), which is about to complete a six-year investment in yogurt giant Yoplait China with returns that are, well, roughly zero.
The venture capital firm announced earlier this month that it's selling its 45.22% stake in Yoplait China to Kunshan Nuoyuan Ruiyuan Management Consulting Co. Ltd., an affiliate of IDG Capital, for 814 million yuan ($115 million). The original target was to wrap things up by December 10, but last week Tian Tu said it needed more time and pushed the deadline to December 31. These delays happen with big transactions, and the company clearly wants to get this deal done before the year ends.
Here's the part that stings: Tian Tu will actually book an 800,000 yuan loss on the sale. Yes, you read that right. After holding this investment since 2019, the firm is essentially breaking even. For context, this isn't chump change we're talking about. It's a massive investment that should have generated meaningful returns, but instead it's delivering the kind of performance that makes investors wonder what went wrong.
The Bigger Picture
The Yoplait China sale is part of a broader transaction where IDG's affiliate is acquiring the entire company from all investor groups for 1.8 billion yuan. Besides Tian Tu's 45.22% stake, there's another investor holding 41.74% and management holding the remaining 13.04%.
The irony here is that Yoplait China itself is actually crushing it. The venture, which borrowed the name of one of France's most recognizable food brands, has tapped into growing Chinese consumer awareness about yogurt's health benefits. Since its establishment in 2013, the company has built serious momentum. Last year, revenue hit 810 million yuan, nearly double the 454 million yuan recorded in 2023. Even more impressive, net profit exploded from 8.39 million yuan to 95.5 million yuan over the same period.
With performance like that, don't be shocked if IDG attempts to flip Yoplait China through a Hong Kong IPO once the deal closes, assuming market conditions stay favorable. But that's speculation for another day.
When Breaking Even Feels Like Losing
For Tian Tu, this sale brings in a decent chunk of capital for future investments, but it's hardly cause for celebration. The near-breakeven exit reflects a bigger problem plaguing the firm: weak returns across its portfolio in a challenging consumer market.
Things were even grimmer before Hong Kong's recent IPO boom gave venture investors some much-needed exit opportunities. Tian Tu was stuck holding investments in a consumer sector hammered by weak sentiment and China's sputtering economy. At least now there's movement. Among the firm's nearly 200 portfolio companies as of June, several have either completed Hong Kong IPOs recently or are preparing to do so.
Tea seller Bama Tea (6980.HK) started trading in late October. Infant products maker Butong Group (6090.HK) debuted in September. Distinct Healthcare filed for its Hong Kong IPO last month. The post-IPO results have been all over the map. Butong is currently up 47% from its listing price, while Bama has dropped 22%. Not exactly confidence-inspiring consistency.
Tough Times for Consumer-Focused VC
China's venture capital landscape has transformed dramatically over the past six or seven years, squeezed by both market forces and regulatory crackdowns. The weak domestic economy explains part of the pain, but Beijing's clampdowns on various financial sectors over concerns about risky fundraising and lending practices added another layer of difficulty.
The numbers tell the story. The number of private equity and venture capital funds plummeted from 14,159 in 2018 to just 7,000 in 2022, according to Tian Tu's 2023 IPO prospectus. Deal activity has similarly cratered. The private equity industry completed just 93 deals in the first nine months of this year, compared to 279 for all of 2024 and 562 in 2022, based on PitchBook data cited in a recent CNBC report.
Tian Tu's consumer focus has become a liability. Technology and pharmaceutical investments tend to generate stronger growth and attract more interest from public market investors, making IPO exits easier. By the end of June, the average investment in Tian Tu's portfolio companies stood at 65.1 million yuan, with an average fair value gain of just 25.7 million yuan per investment. That works out to roughly a 40% return, which isn't going to impress anyone in the venture capital world.
A Glimmer of Improvement
Despite the mediocre returns, there are signs of stabilization. Tian Tu's revenue plus investment gains totaled 67 million yuan in the first half of this year. That might not sound impressive, but it represents a massive turnaround from the year-ago period when the figure was nearly negative 600 million yuan, driven by 620 million yuan in investment losses.
Returning to positive investment gains deserves credit, but the magnitude won't wow anyone, especially not shareholders. The stock barely moved after the Yoplait China sale announcement. Tian Tu shares are down 22% this year, a painful contrast to the benchmark Hang Seng Index's nearly 30% gain. Even worse, the stock has plunged nearly 60% from its 2023 IPO price.
Looking for New Opportunities
Tian Tu has acknowledged the difficulties created by its consumer sector concentration and is actively searching for diversification opportunities. The firm has already started investing in biotech startups. In its latest financial report, management highlighted several potential new areas: income-oriented investments, strategic mergers and acquisitions, and select initiatives in the fast-evolving digital asset space.
With 1.2 billion yuan in cash at the end of June, Tian Tu has firepower for these new investments. The Yoplait sale will add to that war chest, as will likely share sales following Hong Kong IPOs from other portfolio companies.
There's no guarantee this diversified approach will deliver better results than the firm's core consumer investment strategy. But at this point, trying something different might be exactly what Tian Tu needs to revive investor interest and stop the bleeding in its stock price. When you're down 60% from your IPO price and barely breaking even on major exits, change isn't just an option. It's a necessity.
