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February 17, 2015

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Home » City specials » Hangzhou

Crowdfunding more than source of capital

By Xu Wenwen | February 17, 2015, Tuesday | Print Edition

A few weeks ago Hangzhou entrepreneur Jiang Wei was worried about his online fruit store’s cash flow. But after he started crowdfunding, he raised about 1 million yuan (US$160,263) online in 50 minutes with half of those agreeing to invest in the company being customers.

Although crowdfunding originated in the West, it is becoming more common in China, especially those coastal cities where entrepreneurship is booming. Some have said it has also been localized. Those who have raised money through crowdfunding say it has proven even more valuable than just a source of capital. It’s been a source of ideas and even a marketing tool.

According to Rong360, a financial search engine in China, more than 110 crowdfunding platforms raised over 450 million yuan last year. In 2013, there were only 40 such platforms.

According to a Whiter Paper of Crowdfunding published by Economic Press China, the development was so fast that in the first three months of 2014 a combined 52 million yuan was raised through crowdfunding across the country. The number surged to 135 million yuan in the second quarter and 275 million yuan in the third quarter.

In addition, Internet giants like Alibaba, Baidu and JD have entered this industry during the past year.

Alibaba, which is headquartered in Hangzhou, last year launched its first crowdfunding plan named Yu Le Bao (Entertainment Treasure), a vehicle that lets thousands of ordinary Chinese become micro-financiers for movies. Within one week more than 300,000 people invested a combined 73 million yuan in the scheme.

Shen Lihua is the owner of North China Forest Products Company. She raised 900,000 yuan last month through crowdfunding and says it ended up being like a “think tank” as the company’s 60 new shareholders contribute ideas for the business.

Shen’s company grows herbs in the mountains of western China and sells the herbs in eastern China.

She said most of her new shareholders are in their 20s who have given her new ideas to improve the business.

Crowdfunding is the simple practice of funding an idea, project or venture by raising money from a large number of people, usually through the Internet.

Qi Jing, CEO of Hangzhou Dreamove Crowdfunding, said crowdfunding in China is not just about raising money but also promoting a brand and integrating resources.

Jiang Wei owns LemonLife, which sells organic fruit online. Through crowdfunding, the company has gained more customers while also bolstering its cash flow.

“Over half of the investors are women who are mothers and housewives seeking healthy fruit for their kids. They are investors, customers and promoters,” he said.

“Crowdfunding is a channel for sales and branding,” Jiang added, adding that by crowdfunding he avoids price wars, which happens frequently among online fruit vendors, and has found a creative way to gain more customers.

Hangzhou entrepreneur Chen Jun agrees. Chen is preparing to raise capital through crowdfunding among interior designers for his Jobswall Wall-Cloth Company.

“By crowdfunding among interior designers who already have a customer database, we obtain new marketing channels,” he said.

Qi said crowdfunding is also changing the traditional mode of business.

“Crowdfunding replaces the order of traditional business mode,” Qi explained. “Before, a company would produce and sell something first and then get feedback. Now they can ask for feedback, then produce and sell. Consequently, companies can meet market needs better while at the same time securing investors and reducing the need to keep a big inventory.”

Qian Minjie, managing director of TCG Ventures in Hangzhou. said an immature market has led to the “localized” version of crowdfunding.

He said the main objective of crowdfunding in the West is to start a venture. “In China it is usually for something that has already been produced, which leads to a pre-sale or promotion,” Qian said.

He notes that famous Western crowdfunding websites like indeigogo.com and kickstater.com are for ideas like smart wearable devices.

“In the West, crowdfunding works in many ways from the arts and food to games and charity, but in China the lack of a ‘geek culture’ has resulted in it becoming a channel to release new products.”

Last year Demohour, once China’s largest crowdfunding website, changed its strategy in August to become an online presale platform because it said “it was impossible to cater to two groups — geeks and mass consumers,” demohour’s cofounder and CEO Zhang You writes in an article. “Geeks want to participate in the beta test of a new idea or product, while mass consumers look for mature products. The two groups think completely differently.”

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