An investor's view of "Xiachufang": the story before the $30 million financing

Editor's note: [Xiachufang], this APP is not unfamiliar to the editor who loves cooking. Many of my friends are using and truly love this APP. However, behind the scenes: the team almost broke up, the cash flow was almost exhausted, the A round of financing was ineffective, the CTO left, the system crashed, data was lost... Today we will take a look at the story behind Xiachufang, and look at "Xiachufang" from the perspective of an investor.

Recently, the family food community "Xiachufang" announced the completion of a US$30 million Series B financing round, with investors including China Chuang Capital, JD.com, and Series A investors Zhixin Capital and United Venture Capital following suit. Angel Bay was angel invested in Xiachufang in December 2011. Over the past three years, I have seen a product manager 's typical entrepreneurial journey, as well as his spiritual growth and self-breakthrough journey.

Tony was a product manager at Douban before starting his own business. He is introverted and simple in temperament, and has a genuine love for beautiful things in his heart. He regards Xiachufang as his life's work, which is why he makes such beautiful and high-quality products. I myself am also deeply moved by such quotes as "Only food and love cannot be let down" and "Who comes from mountains, rivers, lakes and seas, but is confined to day and night, kitchen and love".

I am an investor who advocates wild growth, and I usually try to control my desire to interfere. But in November and December 2012, I had relatively intensive communication with him.

At that time, Xiachufang encountered great difficulties. The first was financing. While its competitors were successfully raising funds and making rapid progress in the market, Xiachufang's Series A financing was extremely unsuccessful. Although the number of users continued to grow steadily, the company's cash flow was almost exhausted (it could hardly survive the following Spring Festival). The team was under tremendous pressure at the time. The CTO left, technology suddenly encountered pressure, the system crashed, data was lost, and so on. The shareholders' Series A financing for Xiachufang was also ineffective, so I flew to Beijing to have an in-depth talk with Tony.

I remember that it was winter in Beijing in November. I chatted with him in the KFC store in the Olympic Park Shopping Center. He was in a very depressed mood. I even felt that for a moment, he had the idea of ​​closing the company. It was a kind of idealism bowing to the cruel reality. However, in the face of my constant encouragement, he was a little embarrassed to say it out loud.

After leaving the KFC store, the wind was freezing cold outside. In fact, my heart was also cold, but I said to myself in my heart that cooking would never stop here, I must support it!

My thoughts were not only because I was worried about investment failure and losses as an investor. What really made me feel uncomfortable was, how could I watch a beautiful thing disappear? Second, I firmly believe in the power of good products, which is the ultimate winning force, but it takes time. Third, I have experienced the ups and downs of entrepreneurship myself. Entrepreneurs have the arrogant experience of feeling that they are in control of the world, but they also have the self-doubt that denies everything when they are at their lowest.

After returning to Hangzhou, I continued to have intensive exchanges with him on financing, business, and development, including this email:

Tony,

I communicated with you last time in Beijing, and I felt that you were not in a very good condition. It just so happened that I called Wang Xiao yesterday. I hope he can communicate with you more often. I received your text message again today, so I thought I should write you an email to talk about what's in my heart.

1. Understand the current situation of the kitchen

From the perspective of an independent investor, Xiachufang’s performance is outstanding. Not only is the product well made, but the number of users is also solid. Although your main competitor has received a lot of money, in fact a lot of the funds are wasted, and the current stall and staff are far more than yours. Under the current tight situation, your input-output ratio is undoubtedly the highest in the industry, which actually means strong competitiveness. I personally feel that many projects in the market that are far inferior to yours have received a lot of funding, so you should have greater self-affirmation in yourself, your project, and your team.

2. Unique Market Opportunities

2013 and 2014 are strategic opportunities for mobile Internet , and a once-in-a-lifetime opportunity for Internet practitioners. The Android user group of mobile Internet will grow by 500 million users. If we grit our teeth, make good products and promote them properly, I estimate that the number of customers using Xiachufang will reach 8 million next year and 20 million in 2014. Xiachufang’s positioning is a market segment that is currently ignored by Internet giants, but it has huge potential. Moreover, the quality of users is very high, and the value of a single user far exceeds that of users purchased through paid promotion .

3. The Entrepreneur’s Heart

Actually, to be honest, this is what I am most worried about. The last time I talked to you, I could clearly feel your fluctuations. Fluctuations can come from several sources:

1. Lack of funds. Money is running out day by day and it’s getting less and less. When facing a desperate situation, if there is no hard core in their hearts, too many entrepreneurs tend to doubt themselves and deny themselves, thinking that everything is wrong. In fact, the judgment of right and wrong should be more objective and rational, but money is a knife that is too dazzling. If you go through a startup and know more and understand more than before, but the result is a cowardly and fearful heart, then think about the courage and passion you had when you had nothing! At the same time, your opponent has follow-up financing, but in his position, he currently has no business model, a large plate, and huge monthly consumption. He should be more nervous and under greater pressure than you.

2. Exploration of business models. I think you are a little timid in trying out business models, and even feel that commercialization will harm the product experience. In fact, the best product experience must come from commercialization. I once posted a Weibo post: Entrepreneur, if you are an entrepreneur in the business field, then you must have business awareness, understand business logic, and think about business models. To put it bluntly, you need to be a businessman. In the business world, the so-called innovation changing the world is actually "business changing the world", or more accurately, "business continues to change the world."

In terms of commercialization, you have two options: one is to try to have guaranteed income, (1) advertising is a good model, (2) shopping guide is also a good model (can be done on the website, can be done on the app), you can do independent B2C (combining community and e-commerce is a perfect match in business, imagine that Douban and Dangdang are one company today), and you can withdraw. The other is to let your competitors try out the business model and bear the cost. You observe closely and follow up immediately if there is any effect.

At the same time, you must also realize that commercialization itself is also a process. If you don’t try and explore, and continuously iterate and optimize the process like the product experience, there will be no good profit results in the future.

3. Lonely entrepreneur. The departure of the previous CTO is definitely not a positive event. In addition to technical issues, the more important impact is that your startup becomes a solitary operation, which makes you more lonely and reduces a lot of sharing. Therefore, although it is hard to come by chance, you need to spend a lot of time and energy in the process to find a true partner (for example, someone in the field of business operations ). If this issue is not resolved, I expect it will also restrict the long-term development of Xiachufang.

The road to entrepreneurship is full of ups and downs, with constant good and bad times. It is important for entrepreneurs to develop a firm heart to get through the troughs in the process.

IV. Measures taken

1. Think about the different strategies, methods and paths that need to be taken under different resources (no money, little money, medium money, a lot of money).

2. Before the funds are in place, appropriately cut down on expenses and strive to survive longer.

3. Make every effort to raise external financing, and at the same time be prepared for additional capital from old shareholders. If it is the old shareholders who increase their capital, there is no need to worry about the valuation. If the valuation is not high, you can take less money and sell less shares, and you can negotiate it out when you are ready in the A round.

In addition, in addition to being an investor, Angel Bay or I are also entrepreneurs and have experienced many similar things in the process. I am willing to have more exchanges and communication with you. Starting a business is a painful thing, but "without going through the storm, how can you see the rainbow"?

Adi November 28, 2012

More than two years have passed since this email was sent. Time flies quickly in the Internet world. Rereading this email actually made me feel like ten years had passed.

In fact, after this letter, we at Angel Bay and Jiuhe Wang Xiao decided to make additional investments in Xiachufang. At the same time, Tony quickly returned to his entrepreneurial state. In January 2013, he obtained a sum of money from Shenzhen angel investor Lin Hai through the introduction of Angel Capital’s Luc, which turned the tide. Later in March 2014, Zhixin and Lianchuang Ceyuan made a Series A investment in Xiachufang, and commercial exploration began. The subsequent market was warmly welcomed by Xiachufang users. In July 2015, China Chuang Capital and JD.com made a Series B investment.

After seeking Tony's consent, I wrote this letter and the causes and consequences. I did not want to narcissistically prove how far-sighted I am. In fact, my real foresight is far inferior to Tony's, because his original intention is hidden in the kitchen.

Just during that short period of time, I tried to give him some confidence and courage to continue, which is part of the mutual understanding between investors and entrepreneurs. I would like to tell more entrepreneurs that starting a business is like an eternal night. We must remember our original intentions and believe that good things will eventually prevail.

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