In recent years, institutional investors had largely stayed away from China’s e-cigarette manufacturers, an industry teeming with poor repair shops and lacking regulatory oversight. However, investor attitudes are changing as China launches its toughest regulation ever for electronic cigarettes.
Myst Labs, a Chinese e-cigarette maker co-founded in 2019 by Chenyue Xing, a chemist who was part of Juul’s team that invented nicotine salts, a key ingredient in vaping, recently raised “tens of thousands of dollars” from a funding round of the Series B. The financing was led by the existing investor IMO Ventures. Thomas Yao, CEO and co-founder of Myst, is a founding partner of IMO Ventures.
In March, one of China’s leading technology policy makers released a series of draft regulations that would bring e-cigarettes under the same regulatory scope as traditional tobacco. This means that vaping companies need licenses to produce, wholesale and retail the world’s largest manufacturer and exporter of e-cigarettes.
These changes will deal a blow to small producers with poor quality control and leave the industry with a handful of established and compliant players, Fang Wang, director of marketing at Myst, told ..
On the one hand, standardizing production is costly, said Li. From ceramic coils to batteries to fragrances, every component and part of a vapor has to meet strict requirements. E-cigarette companies also have to pay tobacco taxes, a major source of tax revenue for the Chinese government.
The other challenge is to lower nicotine levels. Many current products on the market have a relatively high concentration of 3 to 5% nicotine. So if China meets the EU standard of 1.7%, many small brands will be put out of business because they lack the expertise to produce low-Nik vapors that still satisfy user cravings, Li suggested.
“We have received great investor interest in the past few months. Before, professional institutional investors often avoided e-cigarette companies, but they are now more willing to see regulations take shape, ”Li added.
Myst declined to list its other investors, but said they include high profile individuals who work in e-bike sharing firm Lime, Facebook, and the Bitcoin industry.
Most of Myst’s current sales come from China, where 600 stores have opened and a sales area of 1,000 stores is expected in the next few quarters. Overseas, the startup has a retail presence in Malaysia, Russia, Canada and the UK, where it sells in over 30 shopping malls and some hospitals through its distributor Ecigwizard.
With the new financing, Myst can further expand its sales network and strengthen its research and development. The company prides itself on its 1.7% nicotine product, which it claims can achieve the same effect as its 3% counterpart. In her laboratory, Xing is currently working on e-liquids with “natural tobacco content” and without organic acids, additives with which nicotine salts can be vaporized and absorbed.
Myst is still a relatively small player compared to China’s dominant Relx, which went public in New York earlier this year and is applying for a license to sell in the US. However, Yao is optimistic about Myst’s future. Vaping is one of the fastest growing consumer categories in China. Myst recent sales triple every three months.
“In other consumer areas, you rarely see a top player dominating 60-70% of the market, so there is still plenty of room for the top 10 players to grow,” said the CEO.