Like many overseas Chinese, Derek Weng gets shopping requests from his family and friends whenever he returns to China. Some of the most wanted imported products are maternity items, cosmetics and vitamin supplements. Many in China still uphold the belief that “imported products are better.”
The demand gave Weng a business idea. In 2018, he founded LemonBox to sell American health supplements to Chinese millennials like himself via online channels. The company soon attracted seed funding from Y Combinator and just this week, it announced the completion of a pre-A round of $2.5 million led by Panda Capital and followed by Y Combinator .
LemonBox tries to differentiate itself from other import businesses on two levels — affordability and personalization. Weng, who previously worked at Walmart, where he was involved in the retail giant’s China import business, told TechCrunch that he’s acquainted with a lot of American supplement manufacturers and is thus able to cut middleman costs.
“In China, most supplements are sold at a big markup through pharmacies or multi-level marketing companies like Amway,” Weng said. “But vitamins aren’t that expensive to produce. Amway and the likes spend a lot on marketing and sales.”
LemonBox designed a WeChat-based lite app, where users receive product recommendations after taking a questionnaire about their health conditions. Instead of selling by the bottle, the company customizes user needs by offering daily packs of various supplements.
“If you are a vegetarian and travel a lot, and the other person smokes a lot, [your demands] are going to be very different. I wanted to customize user prescriptions using big data,” explained Weng, who studied artificial intelligence in business school.
A monthly basket of 30 B-complex tablets, for instance, costs 35 yuan ($5) on LemonBox. Amway’s counterpart product, a bottle of 120 tablets, asks for 229 yuan on JD.com. That’s about 57 yuan ($9) for 30 tablets.
Selling cheaper vitamins is just a means for LemonBox to attract consumers and gather health insights into Chinese millennials, with which the company hopes to widen its product range. Weng declined to disclose the company’s customer size, but claimed that its user conversion rate is “higher than most e-commerce sites.”
With the new proceeds, LemonBox is opening a second fulfillment center in the Shenzhen free-trade zone after its Silicon Valley-based one. That’s to provide more stability to its supply chain as the COVID-19 pandemic disrupts international flights and cross-border trade. Moreover, the startup will spend the money on securing health-related certificates and adding Japan to its sourcing regions.
In the decade or so when Weng was living in the U.S., the Chinese internet saw drastic changes and gave rise to an industry largely in the grip of Alibaba and Tencent. Weng realized he couldn’t simply replicate America’s direct-to-customer playbook in China.
“In the U.S., you might build a website and maybe an app. You will embed your service into Google, Facebook or Instagram to market your products. Every continent is connected with one other,” said Weng.
“In China, it’s pretty significantly different. First off, not a lot of people use web browsers, but everyone is on mobile phones. Baidu is not as popular as Google, but everybody is using WeChat, and WeChat is isolated from other major traffic platforms.”
As such, LemonBox is looking to diversify beyond its WeChat store by launching a web version as well as a store through Alibaba’s Tmall marketplace.
“There’s a lot of learning to be done. It’s a very humbling experience,” said Weng.
This post first appeared here: https://techcrunch.com/2020/12/03/lemonbox-2-5-million-funding/