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Ruhnn investment pitch work sample

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An investment pitch made for a San Francisco based Venture Capital Fund.

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Ruhnn investment pitch work sample

  1. 1. Hangzhou Ruhnn Holding Co.,Ltd (NEEQ: 832887) Investment Pitch QI FENG
  2. 2. Hangzhou Ruhnn Holding went through backdoor listing less than a year ago and has only one official half year report available (as of June 2016). In addition, with the absence of its official website and a small amount of repetitive news available online, there is great difficulty in gathering information from public source. As a result, individual interviews were conducted during the research period. Python scraper code was employed to gather a large amount of data to estimate the company’s growth and revenue.
  3. 3. Table of contents  Introduction of Hangzhou Ruhnn Holding  Market conditions  Competitive Landscape  Business Model Evaluation  Great Talent Under Ruhnn  Growth and Revenue (Modeling)  Team  Investors  Relevant events & Long-term Direction  Investment Suggestions
  4. 4. Introduction Of Ruhnn Holding INTRODUCTION BUSINESS CYCLE A BRIEF HISTORY OF RUHNN (MILESTONES)
  5. 5. Introduction  Ruhnn Holding Co.Ltd is the first Blogger Incubator in China.  It is a fashion retailer and talent management company in essence.  Instead of outsourcing marketing to traditional advertising agency and Baidu paid advertising (similar to Google Paid advertising), it expands its advertising period to a whole fiscal year by contracting young, attractive and popular fashion bloggers.  Heavily involve in social media platforms and selling life style, contracted bloggers are able to obtain a substantial amount of followers (well performing ones will always hit 1 million followers) in the first half of a fiscal year and start converting them to consumers in the middle of the year. (Conversion rate may vary from 2% to 20% depending on individual bloggers’ performance.)
  6. 6. Introduction  Ruhnn sets up an online fashion store on Taobao.com for each contracted bloggers aiming to achieve high volumes of sales, which is the major source of Ruhnn’s revenue.  Bloggers are the front men while Ruhnn provides them with essential training , utilizes data analytics to monitor web traffic and handles the whole supply chain of fashion retail.  Sales occur throughout the year but it is highly seasonal due to the nature of the business. Revenue from Single’s Day Sale (11.11, similar to Black Friday) can mount up to 60% of Ruhnn’s total income.  Timing of converting followers to consumers at the middle of a fiscal year and the accumulation of followers also contribute to the seasonality of Ruhnn’s Revenue
  7. 7. Business Cycle January-June Generating web traffic and expanding fan base. June-October Converting followers to consumers. Starting small amounts of sale October – December Realizing revenue by conducting huge volume of sale on individual bloggers’ online store.
  8. 8. Brief History of Ruhnn (Milestones) 2012 • Ruhnn Trading Company was founded in Hangzhou, China, specializing in online Fashion Retail under its own Brand called LiBeilin(莉贝琳). 2014 • Libeilin (Ruhnn) hit Top 10 Women’s Fashion Sale on Alibaba’s online retail Platform Taobao.com, achieving at least ¥0.2 billion sale. • Signed 张大奕Eve (4.74 million followers on Weibo) as the first contracted blogger * Raised Series A, leading investor SAIF Partners (Private Equity) at a non-disclosed amount
  9. 9. Brief History of Ruhnn (Milestones) 2015 Ceased operation of Ruhnn’s own Fashion Brand LiBeilin(莉贝琳) Transition to be the first Blogger Incubator in China, with more than 50 contracted bloggers 张大奕Eve (contracted blogger) individually achieved ¥ 0.2 billion sale on Single’s Day, hitting Top 10 Women’s Fashion Category C Sale on Taobao.com * Raised Series B at ¥120 million with leading investors of SAIF Partners, Legend Capital (VC division of Lenovo) and Telescope Investment(VC) 2016 Backdoor Listing through NEEQ (National Equities Exchange and Quotations) @ ¥7.66 per share, value @ ¥0.176 billion. (April) •Undergone corporate restructuring : dissolved Ruhnn Trading Company, changed the backdoor listing company name to Ruhnn Holding and founded 4 subsidiary companies specializing in different part of its business (media, supply chain, online store management [both in mainland and in Hong Kong]) •¥0.3 billion investment from Alibaba Group right after Single’s Day Sale (11.11) Valuating at ¥3 billion @ ¥96.43 per share
  10. 10. Market Condition CHINESE CONSUMER MARKET THE RISE OF BLOGGERS STATISTICS OF THE BLOGGER ECONOMY THE RISE OF BLOGGER INCUBATORS INDUSTRY GENERAL BUSINESS MODEL RISK ANALYSIS BLOGGER INCUBATORS FUNDRAISING SUMMARY
  11. 11. Chinese consumer market  Strong growth of the Chinese economy increases people’s purchasing power. (National retail volume in 2015 is 30,093.1 billion RMB with an 10.7% annual increase)  E-commerce has become the one of the leading factor in increasing consumption. (National e-commerce retail volume in 2015 is 3,880 billion RMB with an 33.3% annual increase.)
  12. 12. Chinese Consumer Market (Brief Introduction of Taobao)  TaoBao is the largest Chinese E-commerce Platform operated by Alibaba Group. It is similar to Ebay and Amazon. The company reported its gross merchandise volume of $485 billion in FY 2016, which is $3 billion higher than that of Walmart in the same period.  It hosts a shopping festival called Single’s Day on November 11 every year. It is the Chinese version of Black Friday. Single’s Day Sale in 2016 is $14.3 billion (¥120.7 billion)  Single’s Day captures a large percentage of Taobao’s annual volume of sale. As a result, the growth in Single‘s Day sale volume is a good representative of the total sale volume of the website.
  13. 13. The Rise of Bloggers  Fashion retail especially women’s fashion is the dominant force of Single’s Day Sale.  Most of Single’s Day consumers are young women born in the 80s and the 90 living in first and second tier cities in China with easy excess and knowledge of the internet.  Noticing the great market potential and an ideal customer base, individual bloggers who share life style and fashion posts on social media platforms start to convert their followers to consumers. The result is surprisingly good that some bloggers achieve 30 million RMB sale on a single Single’s Day
  14. 14. Statistics of The Blogger Economy  The Blogger industry is estimated to generate a total of ¥ 58 billion revenue in 2016.  Target customer base is young females born between 70s and 95s, in which more than 60% of them are born after 1990 and 25% of them are born between 1970 and 1980.  Women’s fashion is the largest component of the blogger economy still with large room to grow but more competition.  Area such as makeup and skincare, baby and mother care product have relatively smaller volume but larger room to grow with less competition.  Graph: Volume composition of e-commerce sale under Blogger Economy
  15. 15. The rise of Blogger Incubators  In 2014, a new business called the Blogger Incubators emerged as a result of the huge profitability of the Blogger Industry.  Blogger Incubators select, train and manage contracted bloggers. Each blogger usually have a team to manage shared contents, web traffic, blogger’s public image, clothes manufacturing and the blogger’s online store on Taobao.  Blogger Incubators are similar to traditional talent agencies except that the source of income is not advertising commissions but sales revenue from individual bloggers’ online store. (More than 60% of the annual sale comes from Single’s Day.)  Such systematic production system of Bloggers shortens the time for revenue realization (the industry average of the time from training a blogger to conduct successful sale is 3 to 6 months) and thus achieve economy of scale.  There are around 150 to 200 Blogger Incubators in China.
  16. 16. Industry general business model Select bloggers (Good potential candidates are young female with a good sense of fashion, skinny figure and at least 10,000 followers on various social media platform) Social Media Management (Bloggers interact with followers when the Incubators manages their social media account traffic including paid advertising and having influential social media accounts to share blog posts) Preparation of Single’s Day Sale (Conversion) (Based on the comments of followers collected and current trend of fashion, bloggers and incubators design women’s outfit and show samples on social media platform for publicity and inventory management purposes. This is the stage when the incubators start converting followers to consumers.) Single’s Day Sale (Followers-turned- consumers shop on Blogger’s online Taobao Store. Monitoring the volume of orders for different outfits, the incubators will have the factories manufacture more popular outfits. This is when the revenue is realized.) Profit split (Bloggers and the incubators will split the profits after sale and prepare for new business year.)
  17. 17. Risk analysis  High Volatility: The Blogger Incubators rely entirely on individual bloggers’ popularity even with diversification of risk in terms of increasing the number of bloggers contracted and contracting bloggers with different style.  Easy to Duplicate: Chinese Bloggers are highly homogenized due to Blogger Incubators’ systematic production of bloggers. Additionally, low barrier for entry and the easy nature to copy individual public image and style make bloggers face fiercer competition than ever.  Unprofessional Management: Due to the fierce competition and the need for rapid scale up of business, blogger incubators face difficulty in setting up an efficient management system.  Increasing Cost in Acquiring Web Traffic: Increasing need for social media exposure pushes up the price for advertising and paid blog sharing service offered by influential social media accounts. Chinese Bloggers (All young women from the picture above are different individuals.)
  18. 18. Summary  Relative early stage of the blogger economy  Still great room to grow and higher profits to gain  More competitive because of homogenization  Need diversification in the types of bloggers contracted to secure the number of followers and reduce churn rate for revenue stabilizing and business expansion purpose  Ruhnn being the first incubator with a relatively larger number influential contracted bloggers has a substantial market capitalization
  19. 19. Competitive landscape MAJOR PLAYERS COMPETITOR’S BUSINESS MODEL
  20. 20. Major Players Company Name Round Amount (in millions, RMB) Time Lead Investor Fan Xing You Xuan (繁星优选) Series A 17.25 12/3/14 China Media Capital PBLAB (杭州缇苏) Series B 30 5/3/16 Beijing Enlight Media Co Ltd. Yu Jia Yu Le (娱加 娱乐) Series B 100 8/4/16 Legend Capital Ruhnn (如涵电商) Series B 12 10/26/15 Saif Partners
  21. 21. Competitor’s Business Model  Most of the Blogger Incubators now adopt quantity over quality strategy  Yu Jia Yu Le (娱加娱乐)  Contracted 1000+ Bloggers  Quantity over Quality Strategy  Limited individual attention and thus poor performance of bloggers  Mass production of homogenous Bloggers and thus higher default rate  Higher risk because of high correlation between individual bloggers. When market changes to an unfavorable direction, Yu Jia Yu Le (娱加娱 乐) does not have diversification to balance out the downfall
  22. 22. Ruhnn’s business model BUSINESS MODEL IN DETAIL ANALYSIS OF RUHNN’S BUSINESS MODEL AND SCALABILITY RUHNN’S TALENT
  23. 23. Business model in detail  Ruhnn’s business has three stages:  Stage 1: Increase bloggers’ social media influence  Stage 2: Start to convert the followers to consumers and direct followers from social media platform to bloggers’ sale site (Taobao online shop)  Stage 3: conduct actual sale and realize revenue on Single’s Day
  24. 24. Business model in detail (Stage 1)  Content of Training: how to interact with followers as a public figure; how to select and create hit topics; how to do trendy makeup etc.  Social Media Platform: Weibo (Facebook), WeChat, Tudou (Youtube), Youku (Youtube), Bilibili (Youtube), MeiPai (Snapchat), YY Channel (Skype) etc.  Partnered Influential Social Media Account: The price for sharing blog posts is not fixed. It can be free depending on the relationship of Ruhnn and those Social Media Accounts.
  25. 25. Business model in detail (Stage 2)  Notes:  During stage 2, although Ruhnn’s focus shifts to testing sample outfit with followers and directing them to the sale site.  Expanding social media network and post sharing through existing network are still operating.
  26. 26. Business model in detail (Stage 3)  Notes:  Taobao’s live webcast service allows owners of Taobao’s online stores to directly engage with the customers in sharing samples, fashion trends or just lifestyle in general. It also allows the viewers to leave comments which will be show up on the webcast screen. Thus the bloggers can interact with the viewers during live casting.
  27. 27. Analysis of Ruhnn’s Business Model  Select Mature Bloggers: Ruhnn selects potential bloggers with at least 100,000 followers on Weibo. Such process reduces the cost of training since bloggers have previous social media experience. Additionally, the substantial amount of followers indicates the market’s acceptance of these individuals and thus lower risk of default.  Allow Individual Personality and Style: Ruhnn allows bloggers to have their individual style and personality. It is different from most of the other incubators who assign identical public image and fashion style to their contracted bloggers. The industrial general practice cuts cost and saves time in the short run but it is not sustainable in the long run. It is the main contributor for the homogenization of bloggers and high default rate. (Industry default rate is 80%). Ruhnn’s strategy allow its bloggers to stand out and have a more loyal follower base.  Adopt quality over quantity strategy: Ruhnn contracted around 50 bloggers, which is relatively small compare to other incubators at this scale. It allows Ruhnn to give more individual attention and produce better outcome.  Talent Management
  28. 28.  Quick Revenue Realization: The industry average time for a blogger to generate sales from the start of training is 6 months. As a result, Ruhnn’s business model generates cash much faster than most startups. In addition, most of the cost incurred are fixed cost and overheads, which stays relatively constant when scaling up. Thus it produces positive cash flow even in relatively early stage of the business.  Rapid Growth of Number of Followers: Ruhnn leverages its network of influential social media accounts allows the bloggers to gain followers much faster. The ability to share and utilize partners’ follower base allows the rapid growth of the number of followers and thus greater profit.  Lower Cost of Web Traffic: Ruhnn’s organic mechanism of increase bloggers’ social media exposure and number of organic followers has much lower cost and higher return than traditional retail stores. Organic followers are more likely to be returning customers (repurchase rate is 95%) while customers from traditional retail store are prone to one-time purchase. Thus in long-run web traffic and customer acquisition cost are lower under Ruhnn’s model.  Business Model and Scalability
  29. 29.  Loyalty of Followers (stickiness): Bloggers’ frequent engagement with the followers implies a mutuality in the celebrity and fan relationship. Followers are more loyal when their idol responds.  Preorder and Less bad inventory: Preorder and analysis of followers response on outfit samples allows Ruhnn to accurately estimate the sale volume and thus the quantity of inventories. The average traditional retail inventory turnover ratio is 15%-18% while Ruhnn’s ratio is only 2%-3%.  Fast adaptation to market change: Frequent interaction with followers and constant presence on social media allows the bloggers to quickly sense the change in consumer preferences. And thus faster adjustment to the blog post content and outfit design to maintain Ruhnn’s market capitalization.  Business Model and Scalability
  30. 30. Great Talent Under Ruhnn GREAT TALENT UNDER RUHNN
  31. 31. Name No. of Followers on Weibo Social Media Link (Weibo) Taobao Online Store Link Note 张大奕Eve 4,740,423 http://weibo.com/zhangyiev e?refer_flag=1001030101_ https://bigeve8.world.taob ao.com/ Hit Taobao Top 10 Women’s Fashion Retail C Category twice; No. 2 in Most Profitable E- commerce Blogger Rank 大金Dajin 1,822,150 http://weibo.com/kings1992? refer_flag=1001030102_&is_h ot=1 https://dakin.world.taobao .com/ Specializes in Fashion Clothing 虫虫 Chonny 1,714,698 http://weibo.com/u/2634154 091?refer_flag=1001030102_& is_hot=1 https://shop446571526.worl d.taobao.com/?spm=0.0.0 .0 Specializes in Makeup 左娇娇 Rosemary 1,520,409 http://weibo.com/rosemary1 6?refer_flag=1001030101_&is_ hot=1 https://shop114107749.worl d.taobao.com/ Specializes in Fashion Clothing 管阿姨 1,569,971 http://weibo.com/u/1225512 093?topnav=1&wvr=6&topsu g=1&is_hot=1 https://pastten.world.taob ao.com/ Specializes in Fashion Clothing
  32. 32. Growth and Revenue (Modeling) - NOTES AND ASSUMPTIONS - INTUITION BEHIND THE MODEL AND METHODOLOGY - DATA SUMMARY - DATA ANALYSIS - COST STRUCTURE AND SCALABILITY - SUMMARY
  33. 33. Growth and Revenue (Modeling)  Ruhnn does not publish information regarding its revenue and growth  Proxies are identified to estimate Ruhnn’s growth and revenue  Bloggers’ followers are the ultimate driver of Ruhnn’s revenue  Thus the growth of the number of followers is a reasonable estimate of the growth of Ruhnn’s revenue, assuming purchasing power remains constant  Since Weibo.com does not provide the history of number of followers for individual accounts, relevant metrics under each blog post of individual bloggers are identified to be the proxy in estimating the growth of bloggers’ fan base  Relevant metrics are Number of Likes, Number of Comments and Number of Shares  Python Scraper Code is utilized to obtain data  Four different levels of blogging and selling performance are identified and four representative bloggers are chosen for data analysis  Notes and Assumptions
  34. 34.  Weibo Blog Post Example:  Blog post contains three metrics (at the bottom of the picture on the left)  The first one is Number of Shares: 444  The second one is Number Of Comments: 13736  The third one is Number of Likes: 1114
  35. 35.  Taobao Item Sale Example:  Taobao Item Sale contains three metrics  The orange one is Price : ¥459  The one on the right is number of items sold in the current month (Taobao cleans sale data every month): 281  The one on the bottom is the number of comments in the past three month (Taobao cleans data on comments every three month) : 89
  36. 36. Four Representative Bloggers Identified for Analysis (different level of performance) Name No. of Followers Performance Level Social Media Link 张大奕Eve 4,738,586 Super Star Performer (2016 Single Day’s Sale ¥0.248 billion) http://weibo.com/zhang yieve?refer_flag=100103 0101_ 大金Dajin 1,822,825 Star Performer (2016 Single Day’s Sale ¥30+ million) http://weibo.com/kings1 992?refer_flag=10010301 02_&is_hot=1 媌老板 Miaolaoban 996,253 Mediocre Performer http://www.weibo.com/ maimiaoerqingqing?top nav=1&wvr=6&topsug=1 &is_hot=1 - _rnd1482588048810 朴瑟 Puse (Korean Nationality) 1,581,168 Poor Performer http://weibo.com/u/562 6139459?topnav=1&wvr= 6&topsug=1&is_hot=1
  37. 37. Data Summary  Number of observations: 8472  OLS Regressions: F-test and P-values show that all statistics are statistically significant with an average R square of 65%
  38. 38. Intuition Behind the Model and methodology  Please refer to PowerPoint named “Model for Ruhnn‘s Growth and Revenue Detail Explanation” and attached excel spreadsheets for detail
  39. 39. Data Analysis  Growth of Followers:  Ruhnn Blogger Social Media Performance Data Analysis  Individual Blogger’s Revenue:  张大奕eve‘s 2016 Taobao Sales Revenue  Ruhnn’s Estimated 2016 Annual Revenue:  Sensitivity Analysis  Detail Analysis of Sensitivity Analysis  Ruhnn’s Revenue Projection:  Ruhnn’s Revenue Annual Growth Rate  Ruhnn’s Revenue Projection for the Next Four Years
  40. 40. Growth of Followers: Ruhnn Blogger Social Media Performance Data Analysis  R Square  The larger the number of inorganic followers (blogger incubators will sometimes paid third parties for computer generated fans who are not real people to boost up number of followers), the smaller the R square.  The more inorganic fans, the higher standard deviation between R squares. (i.e. Extreme under perform blogger 朴瑟 Puse has huge amount of inorganic fans. Her R squares from different metrics varies drastically from 1.48% to 38.30%)  Reliability of Data  It is technologically hard to use computers progams to generate comments, shares and likes on blogs while it is extremely easy to generate fake followers.  That being said, calculated weighted average monthly growth of followers is much more reliable than number of followers.  Thus 朴瑟 Puse's extremely low volume of sale, growth of comments and growth of shares do not justify her large number of followers  Blogger Performance  1. Blogger- performance evaluation is based on Ruhnn Standard instead of industry standard.  2. Ruhnn Standard is much higher than industry standard.
  41. 41. Growth of Followers: Ruhnn Blogger Social Media Performance Data Analysis  Given high industry default rate of 80%, Super Star (4.24%), Star (7.25%) and even Mediocre (3.90%) performing Bloggers out perform most other bloggers even with fierce competition.  Super Star performer does not experience slower growth as indicated by 4.24% because of her extremely large number of followers (almost 5 million).  Star performer is experiencing rapid growth as shown by 7.25%  Conversion rate for Super Star and Star Performers are all above 20%. Given its high follower growth rate and assumption of constant purchasing power, these bloggers’ revenue growth are equally high.
  42. 42. Individual Blogger’s Annual Revenue: 张大奕eve‘s 2016 Taobao Sales Revenue  Only data on Nov Sale of Nov's Design (11[11]), Dec Sale of Dec's design(12[12]), Dec Sale of Nov's design(12[11]) are actual data.  张大奕eve is estimated to achieve ¥248 million of Sale on her Taobao Online store during Single’s Day, which is 24% higher than that of last year  张大奕eve is the only blogger from Taobao Women’s Outfit C Category (non brand, individual seller category) that is ranked Top 10 of Toabao’s Women’s Outfit Sellers ( including all categories). It is worth noting that she is the only C Category selling on the rank.  Format for Monthly Sales Category: Rev(Month of the Sale Occur[Month of the Design])  i.e. Rev(12[11]) represents the revenue from selling November's design during December
  43. 43. Individual Blogger’s Annual Revenue: 大金Dajin’s Single’s Day 2016 Taobao Sales Revenue  Format for Monthly Sales Category: Rev(Month of the Sale Occur[Month of the Design])  i.e. Rev(12[11]) represents the revenue from selling November's design during December  大金Dajin (Star Performer) made ¥31.4 million of sale during Single’s Day. She out performed most other bloggers in the market.
  44. 44. Ruhnn’s Estimated 2016 Annual Revenue: Sensitivity Analysis
  45. 45. Ruhnn’s Estimated 2016 Annual Revenue: Detail Analysis of Sensitivity Analysis  张大奕Eve's November Sale is 44.6% of her 2016 Annual Sale (247.98million/556.16million).  Assume Nov Sale to Annual Sale ratio for Star Performing Bloggers are higher, assumed to be 60% (conservative estimation), given there are 6 Sales periods on average for each Blogger, each Star Performing Bloggers will be able to generate 52.38 million Yuan Per Year. (Taking 大金Dajin's November Sale as a benchmark, 31.426million / 60% = 52.38million)  Thus 4 Star Performers's Total 2016 Annual Revenue is 210 million Yuan.  Total Revenue from the rest of 45 Mediocre and poor Performers should at least total 67.5 million Yuan with each contribute on average 1.5 million Yuan. (Rest of the Rev - 210 million => 67.5 million yuan)  According to the Detail analysis of Sensitivity analysis Table, 张大奕Eve's % contribution to Ruhnn's Total income should be within range 55% to 59% and Ruhnn's Total Revenue in 2016 should be around 900million to 1billion Yuan.
  46. 46. Ruhnn’s Revenue Projection: Ruhnn’s Revenue Annual Growth Rate
  47. 47. Ruhnn’s Revenue Projection: Ruhnn’s Revenue Projection for the Next Four Years
  48. 48. Ruhnn’s Revenue Projection: Ruhnn’s Revenue Projection for the Next Four Years 1,000.000 1,047.467 1,097.188 1,149.268 1,203.821 900.000 942.054 986.072 1,032.148 1,080.376 y = 50.944x + 946.72 y = 45.085x + 852.88 0.000 200.000 400.000 600.000 800.000 1,000.000 1,200.000 1,400.000 2016 2017 2018 2019 2020 RuhnnAnnualRev Year Ruhnn Holding's Future Revenue Projection Ruhnn Annual Rev (Upper Bound, in millions Yuan) Ruhnn Annual Rev (Lower Bound, in millions Yuan) Linear (Ruhnn Annual Rev (Upper Bound, in millions Yuan)) Linear (Ruhnn Annual Rev (Lower Bound, in millions Yuan))
  49. 49. Cost Structure and Scalability  Other than the cost of inventory, most of costs incur are overhead and fixed cost. Salary for talent management team is the highest among these overheads.  Ruhnn’s business model is highly scalable because of its cost structure.  During expansion, an increase in the number of contracted bloggers will not greatly affect the overhead costs.  Thus Ruhnn can scale up fast as it did in 2015 and achieve economy of scale.
  50. 50. Summary  Ruhnn Holding is estimated to experience a (4.575%, 4.646%) monthly grow and a (4.673%, 4.747%) annual Growth, in addition to a (¥ 0.9 billion, ¥ 1billion) revenue of 2016.  According to the analysis above and aggressive financing activities, Ruhnn is growing and expanding rapidly to capture more market share.  It is also a highly profitable company with the lowest default rate, comparing to most of the other ones in the market.
  51. 51. Team CORE MEMBERS OTHER FACTORS
  52. 52. Core Members  Founders:  冯敏 Min Feng (CEO)  孙雷 Lei Sun  张舒 Shu Zhang  All members have previous experience and held important positions in related field, including E-commerce and media.  Three founders started an E-commerce fashion retail company with a popular brand called LiBeilin(莉贝琳).  Libeilin (Ruhnn) hit Top 10 Women’s Fashion Sale on Alibaba’s online retail Platform Taobao.com, achieving at least ¥0.2 billion sale in 2014 before its transition to be the first Blogger Incubator in China.  Realizing the high cost of marketing and high churn rate of customers of traditional fashion retail business, the founders altered the company’s business model to reduce marketing cost, greatly increase repurchase rate and obtain organic business cycle.  The first blogger Ruhnn contracted (张大奕eve) has 4.7million followers on Weibo and achieved ¥0.247 billion sale on Single’s Day in 2016
  53. 53. Other Factors  Specialization of Bloggers’ Management Teams  Highly specialized departments including talent acquisition, talent training, photography, social media management and analytics, external relationship, purchase and inventory management.  Enables higher efficiency, less mistakes and better outcome for business operation.  Great Office Location  Located in Jianggan District, Hangzhou, which is one of the largest clothing wholesale market in China.  Reduces warehouse renting cost because of advance logistics in China and a short clothing manufacturing period (7 days on average). Most of the inventory can be shipped out directly from the factories.  Enables quick adaptation of market condition such as changing consumer taste because of the same reason above.
  54. 54. Investors LIST OF INVESTORS STRATEGY INVESTMENT
  55. 55. List of Investors Name (Year) Round Amount Note SAIF Partners (2014) Series A Non-disclosed Invested in Ruhnn’s transition stage from traditional fashion retailor to Blogger Incubator SAIF Partners (2015) Legend Capital (2015) Telescope Investment (2015) Series B ¥120 million Invested in Ruhnn’s expansion stage. The company contracted from less than 10 bloggers to more than 50 bloggers and achieved more than ¥0.2 billion Single’s Day Sale during the Same year. Alibaba Group (2016) NEEQ (already went public but with ¥5 million minimum investment) ¥0.3 billion Ruhnn’s stock price sky rocked from ¥7.66 per share at April 2016 to ¥96.43 per share @ valuation of ¥3.3billion. Alibaba Group now holds 10% of Ruhnn’s equity.
  56. 56. Strategy investment  Alibaba Group has access to all the sales data from Ruhnn as it operates Taobao.com  The Group invested 11 days after Single’s Day (11.11.2016)  This investment is a strong indication of Ruhnn’s great performance this year and its better performance in the following year  Given the nature of Alibaba Group’s business, Ruhnn will potentially have access to competitors data and thus have better knowledge of market condition.  Ruhnn will be able to adjust much faster to market change and will potentially open more avenues of income
  57. 57. Relevant events & Long term direction BACKDOOR LISTING AND CORPORATE RESTRUCTURING (FACTS) PURPOSES OF DIFFERENT FINANCIAL ACTIVITIES AND LONG TERM DIRECTION
  58. 58. Backdoor Listing and Corporate Restructuring: Facts  Backdoor Listed through a shell company called 克里爱KeLiAi at the cost of ¥ 0.176 billion on NEEQ (National Equities Exchange and Quotations)  Dissolved Ruhnn Trading Company (the original Ruhnn), changed the shell company name’s to Ruhnn Holding Co.,Ltd and founded 4 subsidiary companies specializing in different part of its business (media, supply chain, online store management [both in mainland and in Hong Kong])  IPO in NEEQ (National Equities Exchange and Quotations) has much lower qualifications such as minimum annual revenue and wait time comparing to IPO in SSE-A Share (Shanghai Stock Exchange A-Share)  Minimum investment in companies on NEEQ is ¥ 5million  There is no minimum investment on SSE-A Share
  59. 59. Backdoor Listing and Corporate Restructuring: Purpose  Ruhnn’s ultimate goal of going public is to be able to raise more capital and increase enterprise value for expansion purpose  It also gives the advantage of better financial regulation including tax regulation, which is more appealing to more investors  Shell companies on NEEQ are usually much cheaper  Minimum ¥5million investment on NEEQ allows Ruhnn to remain relatively private, which enables founders to maintain a majority of the company’s ownership  Corporate restructuring allows Ruhnn to better prepare for expansion as each subsidiary company is highly specialized.  Setting up a subsidiary E-commerce company in Hong Kong indicates Ruhnn’s ambition of expanding out of the Mainland China’s Market
  60. 60. Purposes of different financial activities and Long Term Direction  Ruhnn undergone three major Financial activities in 2016: backdoor listing, corporate restructuring and receiving investment from Alibaba Group.  It aims to rapidly expand its current operation into different geographical locations including Hong Kong and Korea (the company contracted a Korean Blogger 朴瑟Puse in 2015)  It also intents to enter different areas of E-Commerce such as Cosmetics as it starts contracting Bloggers specializing in makeup.  Entering different fields of E-commerce allows Ruhnn to diversity its talent portfolio and reduce risk due to homogenization and high default rate in the market  With the help of Alibaba’s Big Data, Ruhnn will maintain its dominance in the blogger industry
  61. 61. Investment Suggestions
  62. 62.  It is expected that Ruhnn Holding’s share price will increase after publishing its first fiscal year financial report  Alibaba Group’s investment right after Single’s Day proofs this speculation to be correct  Chinese public companies usually publish their financial report from the previous year around late January to April  There will be 15 days to 3 months for investment decision making and investing internationally  Will be able to invest through institutions with QFII qualification (Qualified Foreign Institutional Investors).  Please refer to QFII Qualified Institutions’ List Attachment
  63. 63. The End

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