B2B Investment Map

Author: Yuemei Lv

Editor’s Note

The next decade is expected to be a golden decade for the B2B sector. In this article, we have mapped out some of the biggest opportunities and described the general logic behind how to capture these golden investment opportunities. We also discuss some unique challenges facing B2B startups. Based on thorough analysis and research, Source Code Capital exclusively presents Source Code Research Report Issue No. 6.


  • Industrial Internet encompasses all offline verticals, and Source Code has invested in many of them.
  • The ultimate goal is to better serve end-customers; the back-end will use data and intelligence to serve the front-end.
  • Products, Circulation and Retail – there are new challenges for B2B.

1. An Overview of Industrial Internet

In the past three years, Source Code Capital has been closely engaged in the B2B investment track through continuous research and engagement. We have a broad concept for B2B – we call it “industrial internet” or “upgrade of traditional Industries,” which includes the processes of Internet+ and Intelligence+. “Industrial Internet,” in our definition, refers to the entire process from production to distribution, as well as the retail of all physical goods and contents within its verticals.

Vertically, there are sectors such as FMCG (fast-moving consumer goods), pharmaceuticals, clothing, industrial goods, decoration, auto parts, and others.

Horizontally, it is categorized into several parts: collection and production of raw materials – distribution – product manufacturing – distribution – retail.

Therefore, it can be seen that “Industrial Internet” contains most sectors in the market economy, and we could put almost every part in every sector on the axis of this large map. Only very few enterprises based completely on the Internet are omitted, such as social media, online ads, and content media. The online 2C business is already what we call “red ocean” – the BAT and emerging giants have taken up most of the consumer traffic already.

By Source Code Capital

We believe that in the long-run, the massive offline industry, from production to retail, will be a huge opportunity for venture capital investment. Industrial Internet is aimed at helping transform various different verticals with different entry points and paths. B2B is one such path.

2. Practice and Observation

Looking at the above map, Source Code Capital has already made quite a few investments in Industrial Internet, mostly in the 2C category, and some in 2B.

There are many large sub-categories in 2C: clothing, food, housing and transportation, and there are many sub-sectors within each. Taking “food” as an example, it can be divided into many sub-sectors, such as catering, fresh food, FMCG, beverages, and others.


Yijiupi, an e-commerce business that mainly handles beverages distribution, is one example of a Source Code investment in the 2C category and it has achieved considerable scale. Looking forward, apart from further scale expansion, Yijiupi aims to exert greater influence on the upstream and downstream businesses in the food industry.

ZSKX is dedicated to FMCG B2B transactions in Tier 2-6 cities in China, where people’s access to chain stores and e-Commerce is much more limited than residents in Tier 1 cities. The company ensures steady supplies for convenience stores and small mom-and-pop shops that are far from from premium supply chains, which in turn enables rapid growth.


The 2B category includes any product that goes into the supply of factories, such as commodities, raw materials, components and parts, MRO, machinery, and electronic components.

Ruigushop aggregates upstream producers to offer better services to end channels on Baibu, China’s largest online mobile textile transaction platform. It leverages the potential of raw fabrics at the upstream with its financial strength, and greatly improves the production capacity utilization of upstream enterprises. In addition, by selling goods directly to end-users, it succeeds in enhancing circulation efficiency.

Although all of these examples are self-run B2B enterprises, each competes in their own way, as different sectors have different characteristics. In competing against each other, they have honed on their competitiveness, conducted in-depth exploration of upstream and downstream businesses, and achieved their goals of fast growth in the first stage. They have either completed or are in the process of building additional barriers to safeguard their development.

3. Investment Logic

The industry covers a wide scope. After continuous observation and research, we conclude that the general investment logic is to first set great goals, and then chart out the development path.

There are two goals of industry upgrade:

  • Ensure the end-users obtain more quality products and services that cater to their demands;
  • Improve the efficiency of retailing and all relevant aspects.

Eventually, we believe that the entire industrial chain will be driven by data and intelligence technology, with the back-end serving front-end retail and operations, thus providing premium service for end-users.

As breakthroughs in circulation are the easiest to achieve, establishing B2B e-commerce platforms may be one of the most feasible approaches to achieve these goals. The platforms cover multiple levels of distribution systems and wholesale markets, the storage and distribution system of trunk-road transportation and landing match, and a large amount of supply and demand information. Taking a closer look at the offline market, we can see that the number of circulation levels is sharply decreasing, the wholesale markets are disappearing, the market is becoming more transparent, and that even policies are promoting the integration of circulation enterprises.

This change can reflect the general paradigm that circulation needs to serve end-users more efficiently. In circulation at all levels, the goods should be stored and distributed in a unified way so that the utilization rates and efficiency can be enhanced, and the matching of supply and demand information should be continuously optimized. B2B e-commerce platforms can directly deal with circulation through transactions, hence realizing the Internet-empowered, large-scale businesses at a fast pace and achieving more effective offline integration and operations. In 2015, we analyzed the operational logic of B2B e-commerce platforms – mainly some key indicators and the formula of the gross margin after paying fulfillment cost (not repeated here).

In the past three years, enterprises have rushed to reclaim the market by making preemptive investments. As of now, industrial giants have also entered into the market. In the development of B2B trading platforms, solely working to leverage the potential of circulation channels is barely enough. Additional efforts are called for in the industry upstream and downstream so that industry barriers can be built. With these barriers, the platforms can grasp end channels and attract end-users through a distinctive approach, obtain more data from devices, and build premium brands of their own, thus securing long-term market share.

4. Key Issues to be Addressed

(1) 2C start-ups, especially those in the FMCG field, are faced with grave challenges posed by JD.com and Alibaba Group.

The challenges mainly come from two aspects: one is the continuous advancement of the internetization of customer-end retail, which results in the decline of the market proportion of brick-and-mortar stores; the other is the giants’ vigorous development in B2B offline supply chains.

In the long-term, the internet giants will surely be determined to advance the internetization of all categories of goods. In addition, supply chains, payment methods, and online traffic will be employed to empower offline businesses that cannot be quickly upgraded to promote their integration. This kind of empowerment seems to be very effective, and has a tendency of winning over the entire market. Nevertheless, start-ups should be vigilant and aware that the internal infiltration and transformation of offline supply chains at the business end is undoubtedly a slow and protracted process. As bitter as the process is, e-Commerce giants may not be suitable to promote it. Instead, the persevering start-ups using “millet plus rifle” can grow into great contributors.

Enterprises with B2B businesses hope that they can also run some brick-and-mortar stores. Therefore, whether by newly-founding chain stores or empowering existing shops, they will all have the giants as rivals for a long time to come. To promote internal infiltration and transformation of offline supply chains, start-ups must act in a prompt and targeted fashion.

(2) In many vertical sectors, upstream brands are more influential. It is noteworthy to examine the strategies they employ in deploying channels and promoting e-commerce operations, the relations they have with distribution systems, wholesale markets and end retailers, the channels they share with end retailers, and the ways that they compete.

In vertical sectors with powerful brands, the potential of existing B2B platforms has yet to be leveraged in replacing traditional business models. Most of them have not been well-integrated with brands. Only by identifying pain-points, developing in tandem with the enterprises, and constructing new circulation ecosystems, can platforms remedy the problems in a proper way.

(3) In addition to properly managing relationships between giants and brands, existing B2B platforms also need to fight a battle of wits and courage against traditional distributors.

Second, third, and fourth-tier traditional distributors create relatively smaller value, and thus can easily be replaced. However, in a quest for survival, they tend to ally with each other, or worse, spread rumors of B2B platforms to producers and retailers, in an attempt to suffocate platform development.

To avoid the trap, it is suggested that B2B platforms refrain from directly contending against competitors and attackers using alliances. Instead, they should keep low profiles, look for breakthroughs, and join hands with traditional distributors that still create substantial value in the category, and look for chances of cooperating with them inside the ecosystem. The B2B platforms should create enduring real value for downstream stores and brand producers.

(4) Another way to mitigate the influence of giants and brands is to stay away from markets where customer-end giants operate, and stay away from sectors with mature upstream brands.

There are also many vertical sectors where Chinese brands are still absent and where even giants are left in the dust. Start-ups can try to secure a foothold in these sectors, and then seek to expand influence.

Last but not least, we do want to stress that business-end opportunities do not come instantly. To grow in this field, it is necessary to aim high and plan for the future. The pursuit of steady growth will help build sustainable business barriers and defend against competition.

5. Create Enduring Real Value

We will continually expand our investment portfolio map and research into different fields. We continue to look for opportunities in various stages according to the evolution and characteristics of various sectors. Some opportunities only last for a short time, while others are longer-lasting; some are great, while others are smaller. Some come earlier, and others later. To attain sustainable development, start-ups need to have proper concepts of industrial patterns, deep insights on the general development trends, and seek to leverage opportunities based on a deep understanding of the sector. We welcome all of our peers and entrepreneurs to join us in exchanging ideas and promoting industry transformation together.