The worse the market, the clearer the brands worth backing
Originally written in Chinese. Translated with AI, reviewed by Gary. Read the Chinese original →
A few days ago in Singapore, I used a gap in my schedule to catch up with a VC friend. His firm has deep ties to Temasek.
I asked him: what are you looking at in Malaysia lately?
He answered with two words: semiconductors, and brands.
My eyes went wide.
Semiconductors need no explanation these days. But hadn't DTC (direct-to-consumer) brands fallen out of favour long ago? Traffic is absurdly expensive, and customer acquisition costs are high enough to make a financial statement cry.
Why would VCs look at brands at a time like this?
He didn't explain directly. He just said one thing: the worse the market, the clearer the brands worth backing become.
A company that doesn't sell drinks
Over the past couple of days I came across a video by Cheng Qian on Coca-Cola, which pulled apart its dry financial data piece by piece. Only then did I suddenly understand what my VC friend meant by "brand".
Let's start with an interesting comparison.
In 2024, Coca-Cola had revenue of US$47 billion and net profit of US$10.6 billion, with only 69,000 employees.
By comparison, Danone has 90,000 employees and revenue of only US$29.6 billion. Nestlé is even more extreme: 260,000 employees, with output per head only half of Coca-Cola's.
Why can Coca-Cola live as such an outlier?
Because Coca-Cola is not really a company that sells drinks. Its business structure is extremely light: it sells syrup, and it sells brand licences.
It has thrown all the heavy assets out.
Bottlers invest huge capex to build plants, add the carbon dioxide and handle distribution. Shops and distributors fight it out at the point of sale.
A bottle of Coke sells for 3 yuan. The bottler takes 1.5, but has to carry the heavy depreciation of plant and equipment. The distributor takes 0.5. The retailer takes 0.6. And Coca-Cola takes a modest-looking 0.5, but that 0.5 is almost entirely profit.
Its marginal cost tends towards zero, an enormous structural advantage.
Investing in human memory
If this business is so profitable, why doesn't everyone copy it?
The answer lies in a word many people misunderstand: brand.
Today's tea-drink brands launch a new product every three months, do collaborations constantly and push seasonal limited editions every month. If they stop innovating, users forget them. Coca-Cola hasn't changed its product in over a hundred years. It doesn't need product innovation to stay alive.
It makes a different kind of investment: an investment in human memory.
In 1889, Coca-Cola's revenue was US$13,000, and it spent 85% of it on advertising. In 1912, revenue was US$1.7 million, and advertising was US$1 million. 60%. In 2024, its advertising budget was US$5 billion.
What does US$5 billion mean?
It's like burning through the size of ten Oriental Kopis in a year.
It appears at the Olympics, the World Cup, the London Eye and the Eiffel Tower, and also at Hari Raya in Malaysia and in small villages in Africa.
A hundred years of continuous spending.
In its books, advertising isn't an expense. It's a real investment.
The compounding built up over time finally forms an extremely solid closed loop.
That's business, not brand
Back to what my VC friend said.
Why are they looking for brands in Malaysia?
Because in Southeast Asia, a market that is taking off, many categories still haven't produced this kind of cycle-proof "memory capture".
Most people are still fighting over traffic, conversion rates and who has the most SKUs.
That's called "business", not "brand".
A real brand is the entry point for traffic.
When a user wants something to drink, the first word that pops into their head is that brand's asset.
Buffett bought Coca-Cola in 1988, has held it for 38 years, and owns about 10% of the company.
The Oracle of Omaha wasn't looking at how much sugar went into a bottle of water. He was looking at the unshakeable global structural position behind that sign.
A brand isn't a logo, nor an expensive ad film.
It is what turns dry business logic, over the dimension of time, into a way of life. It's a regular guest in everyday life, a shared understanding across class and race.
For founders, if you can make your product a "memory point" for users, you're no longer selling goods. You're managing time.
That may be the real reason VCs are still willing to pay for brands in the middle of winter.