Deal focus: Mighty Jaxx revels in 'phygital' bridge role
In collectables maker Mighty Jaxx, East Ventures saw not only an effective traditional retail brand, but a company capable of elevating the user experience by straddling the digital and physical worlds
Pop Mart, China's largest fashion toymaker, was well received in Hong Kong in late 2020. The company raised HKD 5.22bn (USD 674m) in its IPO and then gained 79% on debut, despite many market watchers questioning the viability of the business model.
Since then, Pop Mart has fallen below its offering price, tracking a decline in the broader market, but the basic value proposition holds true. Collecting figurines is a popular activity – to the point that China’s pop toy market is expected to triple in size between 2020 and 2024, reaching USD 12bn.
Singapore-based Mighty Jaxx is tapping into the same theme but via a different path. While Pop Mart is known for its mass-market level blind box model – customers buy a full set of 12 dolls for CNY 708 (USD 100) or individual dolls for around CNY 70 without being able to choose the type – Mighty Jaxx focuses on the high-end segment with unit prices of USD 200-600.
The differences extend from pricing to distribution. Pop Mart is building its online business, but prior to COVID-19, directly owned stores were responsible for the largest share of revenue. Mighty Jaxx, meanwhile, already has one foot in the virtual world. It is positioned as a “phygital” bridge between physical collectables and digital experiences.
“We don’t want to build our own stores,” said Jackson Aw, founder of Mighty Jaxx (pictured). “Of our total sales, digital items account for 30%, and they will be the biggest revenue contributor in the future.”
The combination of traditional business strength – 8m units were shipped in 2021 and coverage extends to 60 countries – and Web3 potential recently convinced East Ventures to lead a USD 20m extended Series A round at a valuation of USD 200m.
It was joined by crypto specialist Mirana Ventures, Easternwind International, Pan Solar Ventures, and Teja Ventures. KB Investment and Korea Investment Partners re-upped, having participated in a USD 10m round led by Tencent Holdings last August. KB also featured in a USD 3.2m round in 2020 alongside Greycroft Partners and SGInnovate.
“The company today sits in a unique spot where there is little to no competition. It possesses real-world manufacturing and supply chain capabilities to push out and polish collectables. At the same time, it has another leg in the Web3 and non-fungible token (NFT) digital space,” said Yinwei Liang, a principal at East Ventures.
As such, Mighty Jaxx is not only well-positioned to help traditional brands access the Metaverse; it can also play a role as digital-only assets become physical collectables.
The consumer journey
The company arrived at this juncture due to the nature of its product. Its figurines are often scarce and therefore costly, with collectors paying 10-20x premiums in the secondary market. In 2019, Mighty Jaxx started using blockchain for authentication, embedding a near-field communication (NFC) chip in each product,
The authentication process involves downloading the Mighty Jaxx app and scanning the product with an NFC-ready smartphone. This facilitated another development. Once a product is certificated as authentic, consumers unlock a game key to access the digital version. This interaction – typically through a casual game – is called Xtended Xperience.
“We believe that every collector has a very individual journey, much like a child growing up watching cartoons featuring a certain character. We want to create content specific to individuals, thereby enriching the collector’s journey,” said Aw.
Having taken physical products into the digital realm, Mighty Jaxx then went the other way, creating digital-first assets with real-world applications. NFTs are used to capture digital value. On purchase, customers are offered the opportunity to buy a physical product or enter a physical space not accessible to the general market.
In this sense, Mighty Jaxx’s concept of physical customer experience is very different to that of Pop Mart, which relies on stores as social melting pots. In Aw’s mind, an exclusive physical space offers a better curated experience because intellectual property can be targeted at specific demographics.
“We can use digital assets to kick off the user journey. These assets are very assessable and independent from conventional manufacturing. By that logic, collector outreach is far greater. And once they have the digital assets, we bring them on a journey that includes the physical element, where that is product or space,” he explained.
Southeast Asia agenda
Much as Pop Mart’s blind box model serves as a flywheel, creating a large and sticky customer base, East Ventures believes Mighty Jaxx can achieve the same effect with products that exist in the real and digital realms.
"I spoke to leading blockchain game players in the region, and I found that people spend a lot of money on digital assets and creatures relevant with Disney, for example,” said Liang. “Mighty Jaxx’s notion of phygital really appealed to us. It is a unique capability that can form the basis of significant competitive advantage.”
Mighty Jaxx employs about 120 staff in Singapore, China, the UK, and the US, of which 30% are responsible for creative output and 20% provide technical expertise. Physical manufacturing happens in China, while digital products are developed in Singapore.
Southeast Asia is a natural expansion market, given the deepening penetration of virtual reality experiences and gaming. East Ventures will help Mighty Jaxx understand the Indonesian market and establish partnerships with local retailers. The venture capital firm will also explore its existing portfolio and network for potential synergies, especially in terms of IP.
According to Liang, Mighty Jaxx had no shortage of suitors and chose to work with East Ventures because of its long-term approach and habit of sticking with companies from early rounds through the achievement of unicorn status. Aw, meanwhile, emphasises the importance of working with early-stage investors that really understand the business.
“When we choose investors, it could be a very individualistic thing because we need to work alongside them,” he said. “You can’t take that human factor out of venture capital.”
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