An insight into China’s crowdfunding industry

Why fund your business on a crowd-funding platform in China: the pros and cons

A bag company raised 1 million USD in the U.S., 0.8 million in Europe, and 1 million in China. Basically, they successfully secured 2.8 million USD before producing.

China is estimated to generate $50 billion, or 52 percent of the global total in crowdfunding by 2025.

Is it a good idea to start a crowdfunding campaign in China?

Starting a company in China can be a risky and challenging venture. One of the biggest challenges for small businesses and entrepreneurs is being able to mitigate short-run costs and see their business into profitability.

Insufficient funding, the inability to forecast expenses and obstacles, as well as low consumers’ and investors’ confidence have condemned many past international attempts to failure. With crowdfunding, can be expected to see it alleviate many of these issues, and spur growth for both domestic and foreign firms.

As China’s market continues to grow and develop economically, crowdfunding will give the country the ability to transition its position from a manufacturing-based to an innovation-based economy with a new wave of entrepreneurs and investors emerging.

READ MORE ABOUT STARTING A COMPANY IN CHINA

Crowd-funding in China has got its practices

Source: Marcetable “E-commerce giants dominate the Chinese crowdfunding industry.”

Reward-driven crowdfunding is the method that works best in China. New channels such as equity crowdfunding promise an uncertain return on investment and are perceived as a high risk, particularly to Chinese investors. As a result, reward-based crowdfunding has been more readily accepted in China. Unlike other methods, reward-based crowdfunding offers goods like coupons, souvenirs, DVDs, or other forms of collateral for their investment, as well as early access to new products.

The Chinese crowdfunding industry is dominated by major e-retailers such as JD.com, Alibaba and Suning, major e-commerce platforms that have taken over the crowdfunding industry, and who can take advantage of their huge consumer bases.

JD.com has grown into an online Marketplace site, with profits and amounts of goods that rival Alibaba’s Tmall. JD.com users’ activities are deeply connected, and crowdfunding is combined with shopping and even with funding startups.

Risks and Advantages of crowdfunding in China

Advantages:

The very act of reaching for support for an idea can also reveal the interest and demand for that product. By engaging with the donors and backers, you can draw useful feedback from them and develop your product with a customer-focused perspective. Investors can participate in select divisions of the business indirectly, providing feedback on product design or other suggestions.

One thing Chinese consumers love is the comfort of functioning via mobile apps and mobile payment methods, an important insight on Chinese consumers. Crowdfunding platforms effectively act as an innovative financing intermediary, while simultaneously providing ease of access through the internet and smartphone apps. Another advantage is that the simple, easily accessible nature of crowdfunding apps allows small firms to fundraise internationally.

READ MORE ABOUT MOBILE PAYMENT IN CHINA

Chinese consumers need to be familiar with the brand

Even before launch, crowdfunding can generate significant buzz for the product. This is important for many Chinese consumers, as large business that they are unfamiliar with coming across as unappealing. Crowdfunding offers new firms more connectivity with their market and supporters.

In addition, most Chinese need testimonial to trust a business. Crowdfunding

provides a much clearer picture of how investor money will be spent, and what the end product is. By adding an element of trust to the equation, Chinese consumers are more likely to back campaigns.

Potential risks: 

Chinese investors won’t always evaluate long-run projects. As project evaluation remains vital in attracting and maintaining investors, many risk-averse investors will seek short-term profits rather than explore potential long-term opportunities. This culture of uncertainty often limits investors who lack the skill or resources to inspect their investments.

Trust is still rather low in some platforms. Investors also would face high risk from reward-based crowdfunding as principals may over-promise or make fraudulent claims about their projects to attract more funding. Trust is still rather low among the crowds, the platforms, and the start-ups and many investors and entrepreneurs are being careful interacting with some platforms.

When firms lay their products or services out for funding, the same goes for their reputations. The resulting success or failure of the firm’s launch ultimately reflects on the founders and those who helped promote it the most. This is true post-launch as well. Should the firm meet all its fundraising objectives and begin operations, only to deliver a subpar product or service, this too may weaken their image going forward.

China has weak intellectual property laws that routinely fail to protect entrepreneurs, and competing firms face almost no legal deterrence from stealing, imitating, or otherwise infringing on property rights. There are essentially no oversight agencies that vet crowdfunding ventures, so there is effectively a stifled potential innovation in the crowdfunding sector in China.

Can foreign entrepreneurs use Chinese crowdfunding platforms?

With the help of a Chinese speaker, it wouldn’t be so difficult to reach Chinese crowdfunding platforms. Foreign entrepreneurs have got to ensure that their products are effectively being shipped to the Chinese backers when presenting reward-based projects. In particular, there are opportunities for alien technology companies in China.

READ MORE ABOUT CROWDFUNDING IN CHINA

Daxue Consulting & Crowdfunding

The Daxue Consulting team has helped several startups and small businesses prepare for their crowdfunding initiatives. Our China specialists will advise you on launching, running, and promoting successful campaigns in the Chinese market. Daxue’s expertise in social media and digital strategy in China have helped us to understand the crowdfunding landscape, including outreach techniques and efficient targeting of media and donors depending on the industry.

With the advantages of crowdfunding, entrepreneurs will have the ability to enhance their funding needs via online crowdfunding platforms. As the core idea of crowdfunding is to empower people to be innovators, encouragement towards this should be a priority in order to develop the economy of the country.

The Daxue Crowdfund

Daxue Consulting is developing a platform of crowdfunding for market research projects in China. The purpose is to offer you the best of our state-of-art market research methodologies at the most competitive price thanks to a group-buying method.

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