Months of tit-for-tat trade negotiations between China and the United States have damaged cross-border investment interest between the superpowers, especially in areas that involve deep technology and intellectual property. But one sector has so far stayed relatively intact: lifestyle.
That’s what got Per Welinder, the legendary skateboarder-turned-entrepreneur who recently moved into venture investing, to look toward China for opportunities. In early 2018, Welinder teamed up with Chinese venture investor Curt Shi — a skateboard amateur himself — to launch early-stage angel fund WelinderShi Capital, focusing on bringing western lifestyle brands to China.
So far, WelinderShi has deployed all of its first fund into five consumer brands with the potential to capture China’s increasingly sophisticated middle-class, among whom Welinder observed a “growing individualism away from collectivism that is positive for lifestyle brands,” Welinder told TechCrunch in a phone interview.
Rather than taking the “spray and pray” approach, the fund picks a smaller number of companies compared to many other venture capital firms because it focuses on brands, which take time to build.
“There has been a headwind when you talk about cross-border opportunities with China in general. However, lifestyle is usually not a national security threat to either Chinese or to the U.S.,” Welinder observed. “Yes, there may be tariffs here and there, but it’s not a national threat to consume a pair of pants by a cool brand originating from the U.S.”
That being said, Shi, in a separate interview with TechCrunch admitted that trade tensions have in recent times generated doubts from limited partners on the fund’s methodology to help overseas portfolio companies “slingshot to China.”
“China and the U.S. can’t afford a real economic fight with each other… I believe once China and the U.S. reach a consensus, the investment between them will be booming again,” Shi noted.
Unlike a successful venture capital investment in tech that can generate a 200x type of exit, the return in brand investment is less lucrative. The appeal is that even if a portfolio company goes south, there remains some value in the brand, whether it’s the trademark itself or graphics.
“When you use branding as a differentiator, you may get pennies on the dollar even on the bad investment. But it will not go to zero like so many tech investments do, so we feel that is a somewhat less risky formula,” Welinder said.
The portfolio counts the likes of a Swedish electric off-road motorbike startup called Cake and premium gin manufacturer Wilde Irish Gin. Welinder makes a deliberate decision to back premium brands because even when tariffs are on the high side, the extra costs generally don’t have an obvious effect on consumers who like to treat themselves to the really good things in life.
When it comes to identifying potential investments, Welinder leans on spotting what he calls a “movement.” He cited his personal experience in the 1980s and 1990s when skateboarding became a movement. First, he started to see other people getting hooked on either participating or watching skateboarding. With the help of VCRs, DVD players and gaming consoles, skateboarding culture blossomed into a global commerce phenomenon.
“And people got excited and then said, ‘hey, mom and dad, can I have a skateboard? Can I have a T-shirt? Can I have a pair of shoes?’ That’s the kind of the way we like to look at things. Where do we see movements, what technology can be leveraged to really speed up that movement, and is that movement big enough for more than just one player.”