The Investment Logic of N5Capital behind the lead in the D1 round financing for FlashEx

At the end of August, the same city one-hour express delivery brand FlashEx announced the completion of the $60 million D1 round of financing. N5Capital, Haisong Capital and V Star Capital are the joint leaders of this round of financing.


“As an early-stage investment institution,FlashEx is not the sweet spot for our usual investment. First, because the investment amount is relatively large; second, the investment phase is relatively late.” Will Jiang, founding partner of N5Capital, said.


However, N5Capital still chooses to take the role of the lead investor and participated in the D1 round financing for FlashEx. For N5Capital, what kind of growth potential does it see in FlashEx? In the field of consumption, what is the layout and logic of N5Capital?


FlashEx still has more than ten times growth potential


N5Capital was established in 2013, focusing on early stage (primarily A round) investment in the fields of Consumer & Technology Convergence, fintech and digital economy. At present, N5Capital manages two RMB funds and two US dollar funds, with a management scale of 4 billion yuan and more than 80 projects.


Will Jiang and FlashEx CEO Peng Xue are EMBA students from PBC School of Finance, Tsinghua University, but they really know each other because of the introduction of Muqing Li, an early investor of FlashEx. Muqing Li invested in the A round of FlashEx at the time of CDH Investments. After leaving CDH Investments, Muqing Li and Wenjiang Chen set up YI capital, and made subsequent rounds of investment in FlashEx.


“After our contact with FlashEx, we found that the team really has its own unique features, including the overall pricing strategy, the support of technology for distribution, and the management of crowdsourcing distributors,” said Will Jiang.


According to the research of N5Capital, the current same city express delivery market has tens of millions orders per day, and the compound growth rate of the market is around 20%. In the future, it is possible that there will be billions of orders every day. FlashEx cuts into the one-hour express delivery market, which accounts for 10%-20% of the same city express delivery market.


Due to the high requirements on timeliness, the customer base is less sensitive to price. Relatively speaking, customers with high unit price or urgent and important items, users will use the high-end delivery service provider such as FlashEx. For example, files and so on, there are also individual users who have delivered a million-dollar antiques by FlashEx.


“From this point of view, FlashEx is no longer a simple logistics infrastructure, but a consumer brand that goes deep into the C-end. Now the one-hour courier is almost synonymous with FlashEx, and that’s one of the things that we value very much. Apart from SF, few other distribution companies have built this kind of brand influence in users’ minds. ” Will Jiang said.


N5Capital is mainly focused on early stage investments. This time, there are also strategic consideration behind breaking the usual routine and participated in the D1 round financing of FlashEx. Will Jiang said that N5Capital had invested in Hot & Hot, Soup Town and other companies in consumer sector. Hot & Hot and FlashEx have already started collaboration in delivery service under the introduction of N5Capital. Will Jiang believes that the one-hour distribution network may become an indispensable infrastructure for consumer products in the future, and FlashEx has the value and opportunity to cooperate with consumer companies invested by N5Capital.


In terms of the company’s financial performance, FlashEx said that after the company’s business was launched in 2014, it achieved profitability in 2016, and then maintained a growth rate of 300% per year. After the current round of financing, the company’s cash reserves have reached 150 million US dollars.


“This kind of cash reserve means that FlashEx is not afraid of any new entrants. On the other hand, everyone is talking about capital winter, so it is a wise choice to have more cash reserves.” Will Jiang told Currently, FlashEx has basically become synonymous with the “one-hour express delivery”. In the next two years after this round of financing, the company will enter a high-speed growth period and gain more than 10 times growth, becoming a company with at least the same level as the “Shentong Express, Yuantong Express, Zhongtong Express, Huitong Express, Yunda Express”.


 Investment in Consumption sector should pay attention to technological value


FlashEx is just one example of N5Capital’s investment in the consumer sector. In addition, N5Capital has invested in companies such as TalkingData, 360 Finance, Hot & Hot, Shilily, Rent to Play, Zhulogic, and Soup Town, etc. Among them, N5Capital’s 10 million RMB angel investment TalkingData is expected to be listed in the near future, bringing about a return of 100 times for N5Capital.


“Most consumer companies are doing straight-line business and copying from one point to another. N5Capital wants to invest in consumer companies that use technological progress to bring curve growth.” Will Jiang told


He said that when N5Capital invests in the consumption field, the key points are the right place, the right time and the right people.


“The right time” refers to the market size. It is possible that any consumer segment in China can achieve a market size of 100 billion yuan. However, N5capital wants to invest in sectors that are on the rise, with compound growth rates of two to three times the GDP growth.


“In addition, we hope to invest in a relatively fragmented market. No one in the market can achieve a market share of more than 1%. The supply and demand sides are scattered. There is a need for integration in this industry, and technology can generate more value,” he said.


“The right place” refers to the value brought by technology, that is, the increase in gross profit margin. Will Jiang said that gross profit comes from the pricing power of the supply side and the demand side, and only technology can generate pricing power. Therefore, when N5Capital invests in the consumption sector, it will use gross profit margin as a prerequisite for measuring whether technology can be effectively used. Of course, if there is no understanding of the upstream and downstream relations of the industry, there is no use of technology, thus the combination of technology and industry is very important.


“The right people” means that the team needs complementary advantages and high human efficiency. The profits of many traditional consumer industry come from squeezing the wage costs of low-end workers.However, the cost of technology focused consumer enterprises will change to some extent.


For example, FlashEx takes advantage of the crowdsourcing scenario. Most of the company itself is a technician, doing algorithm upgrades and pricing strategies, and the profitability is brought up by the improvement of human efficiency. Under these standards, the consumer companies invested by N5Capital have higher gross profit and stronger profitability, and the companies are growing at a rapid rate.


In the financial sector, Will Jiang said that cross-border finance is the trend, but the capital exchanges and related financial technologies in cross-border transactions still remain on the network established more than a decade ago or decades ago.


Although the emergence of Alipay and WeChat have solved the front-end upgrade of cross-border transactions, the cross-border clearing at the back-end has not been upgraded. There are both technical and licensing issues that need to be resolved. “This is also an opportunity for Chinese entrepreneurs. A large part of our investment in the financial sector is in cross-border financial services.” Will Jiang said.


In addition, financial derivatives are also N5Capital’s investment sector. Will Jiang has had experience in derivatives hedging in Canada. He said that many people in China regard finance as a leverage tool, but the greater role of finance is to hedge the uncertainty and volatility in the real economy. The value of finance as a hedging instrument has been ignored by most entrepreneurs and financial practitioners in the past, but the change has arrived.


“Finance is inseparable from consumption. What we are looking for is the combination of consumption and finance. Recently we have invested in financial derivatives, and these companies have grown beyond our expectations. This is an important opportunity for new fintech companies.” He said.


In the digital economy, Mr. Jiang says that while China’s mobile Internet dividend is fading, there are still opportunities for the international market. China has the advantage of leading the global market in social network, video and other aspects.Text:  Reporter  Shen Junhan/Editor  Lin Kun