The E-cigarette Capital Illusion: Strong Brands Get Funded, and There’s No Shortage of Financing Smo

"Since 2018, a large number of e-cigarette brands have entered the market riding the so-called wave. Many investors have also viewed e-cigarettes as a tool for making quick profits," said Fang Hui, CMO of Bode E-cigarettes, in an interview with the Times Weekly on September 27.<\/p>

According to various media reports, from June 2018 to the present, there have been nearly 30 investments in the e-cigarette sector. In the first half of 2019, there were over 35 investment cases, with 18 instances of financing exceeding 10 million yuan, totaling over 1 billion yuan, not including the top brands that did not disclose their financing amounts.<\/p>

"Currently, capital is not as enthusiastic as before; this sector is not as crazy as everyone imagines, and capital has remained very rational. Some companies claim to have secured funding, but in reality, they have not," said Zhou Jie, CMO of MoDi E-cigarettes, on October 9 during an interview with the Times Weekly.<\/p>

The largest reported financing in the market this year is MoDi E-cigarettes' completion of a $50 million Series A financing.<\/p>

According to media reports, the latest investor entering the market is a well-known international dollar fund, SIG Asia, an investor in Toutiao.<\/p>

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In response, on October 9, during an interview with the Times Weekly, Zhou Jie stated that she could not disclose specific information but admitted, "Our financing situation is relatively good in the industry, with the scale of financing generally in the tens of millions of dollars, which is sufficient to help us accelerate business growth and brand development."<\/p>

When asked about future financing plans, Zhou Jie mentioned that there would be other opportunities: "We are actually in a continuous financing state, and several funds have already come in."<\/p>

According to previous media reports, on July 17, MoDi completed a $31 million Series A financing led by HeYu Capital. Earlier this year, it completed a $10 million Pre-A round financing led by ZhenGe Capital.<\/p>

According to Zhou Jie, the founding team of MoDi has been engaged in the e-cigarette industry in the U.S. for nearly 10 years, focusing on the overseas market, and returned to China this year to target the domestic market.<\/p>

It is reported that in the first quarter of 2019, MoDi's revenue was nearly 140 million yuan, with a net profit of around 10 million yuan.<\/p>

"This sector has suddenly attracted many players; if you analyze each company's background, you will find that MoDi is different from them; we can say we are veterans in this industry," Zhou Jie said.<\/p>

Public information shows that most well-known e-cigarette brands in the industry were established in 2018 or 2019, many of which entered the market riding the e-cigarette wave. Notably, several individuals with high online visibility have also joined the fray.<\/p>

Among them, Luo Yonghao, the founder of Smartisan, was reported to have joined the e-cigarette brand Xiaoye as a co-founder in April, founded by former Smartisan president Peng Jinzhao. Previously, Luo Yonghao had supported the e-cigarette brand Fulu founded by Zhu Xiaomu, the first employee of Smartisan. The founding team of the well-known internet new media "Tongdao Dashu" has also entered the market one after another.<\/p>

Among them, founder Cai Yuedong and the founder of "Huang Taiji" He Chang established the e-cigarette brand YOOZ, while chairman Zhang Jinyuan, along with WeMedia chairman Li Yan, Junwu Ciwei founder Zeng Hang, and Vision Zhi founder Sha Xiaopi, founded the e-cigarette brand Lingxi LINX.<\/p>

On September 30, iLax CEO Wei Lu, when discussing the entry of new media, stated: "These brands with traffic resources have a strong internet presence and are good at creating hit products. Nowadays, they are not limited to relying on media profit models to make money; they will develop through product creation, which is a major trend."<\/p>

In Wei Lu's view, the innovation, repurchase rate, and stickiness of e-cigarettes meet the standards for new media to choose traffic monetization.<\/p>

"In the first half of 2019, there was a wave of enthusiasm, with many claiming to have secured funding to create a new brand; in reality, a large number of small brands emerged," Zhou Jie revealed to the Times Weekly. "Many brands claiming to have raised funds have neither disclosed amounts nor investors, which raises questions about whether they truly secured funding."<\/p>

According to previously reported media statistics, many companies announcing financing have not disclosed specific amounts or investors. Some even use vague terms like "millions" or "tens of millions" to respond.<\/p>

According to an industry insider, some companies may be "shuffling money between themselves," with a large group investing in their own brands, claiming to have raised significant funds, but the actual money received is very little. Some companies may also borrow from other channels but claim to have raised funds, which also exists.

"If you look at the actions of the leading investment institutions, you will find that they are not randomly investing without discretion; they still place great importance on this industry," Zhou Jie admitted. #p#分页标题#e#

According to incomplete statistics, IDG, ZhenGe Capital, Jingwei China, and Source Code Capital have all entered the e-cigarette sector.

Recently, the Times Weekly contacted several investment institutions regarding e-cigarette investments, but they all stated that it was inconvenient to comment at this time.

According to Zhou Jie, investment institutions currently focus on three aspects of brands: first, the product R&D capabilities of the company itself; second, the experience in the industry; and third, whether the future development plan is clear.

Previously, media statistics indicated that over 20 listed companies are involved in related businesses. Among them, there are seven in the A-share market, namely Yingqu Technology, Jinjia Co., Shunhao Co., Dongfeng Co., Yiwei Lithium Energy, Meiyingsen, and Heertai. According to Wind data, these seven companies generated 21.8 billion yuan in revenue last year, with a total net profit of nearly 3.6 billion yuan.

"I do not wish for this industry to be disrupted by those who come in to make a quick buck; this would be a fatal blow to the industry. Therefore, I hope national standards are introduced soon to bring the e-cigarette market back on track," said a long-time industry practitioner to the Times Weekly.

In fact, the influx of capital has led to a rapid increase in the number of e-cigarette brands, but a fierce battle is unfolding in the middle and lower tiers of this pyramid.

"If you have not participated in the production of smartphones, counterfeit devices, or other 3C products, you would not understand the chaotic growth state of e-cigarettes," said Meng Chao (pseudonym), an e-cigarette practitioner, to the Times Weekly on September 30, noting that Shenzhen, the world's largest electronic device manufacturing base, provides the foundation for the growth of the e-cigarette industry.

The main components of e-cigarettes are the device and the cartridges, which contain e-liquids made from nicotine, flavorings, and glycerin.

From Meng Chao's initial experience in the e-cigarette industry, many of the earliest e-cigarette brands produced products by showcasing mature molds from OEM factories, allowing brand owners to select a style that suits their brand, with the e-liquids provided by the OEM factory offering several basic formulas for customers to choose from, and once the OEM factory assembles and labels the products, they can be launched to the market.

"Over 90% of companies do not need to engage in product R&D or design; they do not have to worry about any technical aspects, they can simply source products directly from the OEM factory," Fang Hui stated in an interview with the Times Weekly on September 27, adding that unless a company has strong financial resources and a significant market share, they can demand the factory to create differentiated products.

However, for the vast majority of small and medium-sized e-cigarette companies, "they do not have enough funds and bargaining power; they basically take whatever the factory provides, with limited options, at most making slight adjustments to appearance and flavor."

For e-cigarette brand owners with small production demands, if they submit requests through conventional supply chain channels, the communication costs can be significantly higher.

"It is best to communicate with the security guard at the factory gate, as they know how much stock has arrived today; if they know the stock volume, then go inside the factory to negotiate for supplies," he said.

The growth state at the production end of the industry has led many newcomers to the e-cigarette sector to believe that the barriers to entry are extremely low, with some even claiming, "500,000 yuan can start an e-cigarette brand," which has resulted in severe product homogenization in the market.

"Recently, various brands have launched many new products, and many people are asking why they all look the same; is it possible they all came from the same factory? I think it is very likely that they are all products from an OEM factory," Fang Hui commented, stating that this is not a healthy competition.

On September 30, iLax CEO Wei Lu stated in an interview with the Times Weekly that after the new national standards are introduced, there will be a reshuffle in the e-cigarette industry, and with requirements for product production and quality, it will curb those companies that can simply find an OEM factory to label and sell products. This is a good thing for companies that want to excel in the e-cigarette market.