Crowdfunding remains small proportionally in one of the worlds largest economies – but it is growing quickly.
Recent reports have stated that China generated 188 million yuan (over $30 million USD) from January to June. This was the result of 1,423 crowdfunding campaigns. This growth is occurring while local venture capitalists lack the funding depth to match the might of Silicon Valley. Venture capital raised around $7 Billion in China the first half of the year – but most of it came from the US. There are an emerging crop of home grown VCs but this is a relatively recent phenomena.
Most crowdfunding is via equity-crowding according to a report from Zero2IPO. This past June alone 87.76 million yuan was raised by equity crowdfunding – more than the total amount from January to May. While the growth is encouraging the demand is outstripping supply. The same report states that the total 156 million yuan raised via equity crowdfunding was only 7.64 % of the demand that stands at over 2 billion yuan.
One recent evolution is crowdfunding for the JRCoffee shop located in Beijing’s financial district or the Jinrongjie area. Individual investors were asked to kick in about 300,000 yuan to become shareholders in the coffee shop. Investors were selected for their economic acumen. To quote a report in ECNS;
About 60 percent of the funders hold an advanced business degree, such as an MBA or EMBA, and up to 30 percent are from overseas. Most shareholders of the coffee shop are in their 40s or 50s, and tend to be middle-to top-level managers at financial institutions.
“[the organizers] are planning two rounds of fundraising for their coffee shop and hope to collect 300,000 to 500,000 yuan per person from 200 funders. In retur hey will get a coffee consumption card worth the same value with a five-year validity period. That is roughly the equivalent of about 164 to 273 yuan per day, which is equal to about seven lattes from Starbucks.
The issuers hope to raise 100 million yuan, not a small sum. All funders are expected to receive and hold equal shares in the company. The capital should guarantee the coffee shop will operate for at least 5 years. While there is no formal way for a shareholder to cash in, those who hold shares may transfer ownership to other qualified candidates.”
Yang Yong, a major funder of the JRCoffee stated;
“I think equity crowdfunding among acquaintances has more potential for entrepreneurial projects, compared with debt-based crowdfunding in China. Chinese people don’t trust crowdfunding Internet sites. China is a nepotistic society; sometimes people trust the binding force of friendship more than a legal contract.”
Back in June, it was reported that government regulators were in the process of reviewing crowdfunding that may generate a new approach. Expectations are an announcement from regulators should be forthcoming soon.
According to a report from the World Bank published last year, crowdfunding holds great potential hitting $50 billion in the next ten years. While it is pure speculation at this point – crowdfunding in China continues to possess enormous economic potential.