Is Crowdfunding Declining in China?

The news that Demohour is acquired by a finance entity, is exploding in the hardware community.

Demohour is the first crowdfunding platform in China. Its history is considered a thorough exploration about crowdfunding in Chinese market, with a great milestone to many local hardware startups. To many people, it feels complicated how it ends up with a part of a finance conglomerate. It was founded in May 2011 as a clone to Kickstarter, followed by many doubts in the public while its various repositioning.

Demohour has a great vision, “an Utopia where creativities and dreams can be supported”. It experienced different business transformation, from culture & art, information technology, to later smart hardware. When it came to the public 4 years ago where crowdfunding was still a new concept, Demohour got a lot of attention and people were super excited about the campaigns.Big Fish & Begonia, is a typical animation from this platform.

But since 2013, Demohour tried different ways to stand out. In 2013, it repositioned itself as “the crowdfunding platform for smart hardware”, and it cut its business in art, music and other cultural perspectives. In 2014 August, Demohour suddenly announced that it would cut its previous crowdfunding business and repositioned itself as “the platform for smart hardware launch”. Accordingly, Demohour provided advertisement and marketing services for smart hardware companies, including packaging, branding, positioning and pricing. But after one year, Demohour accounced to the public again it would come back to crowdfunding service again.

When crowdfunding was introduced into China, Demohour benefited as the early entrant, with a decent amount of attention and user base. Meanwhile Chinese venture capitals found out this shortcut to a bigger profit margin with crowdfunding’s capability to pave the way to equity. But as it turned into a “everything is on crowdfunding” situation, the campaign quality deteriorated as the quantity exploded.

That made Demohour reconsider and thus give up the crowdfunding service. Geeks and general consumers have different requirements, which makes it difficult to satisfy both. Also as the platform reputation was going down, startups with mature products would be more hesitating whether to launch it on Demohour or not, while those with beta products would have risks of delays in shipments.

“Idea — Prototype — NPI — Mass Production”, Demohour would like to focus hardware product presale after giving up crowdfunding.

But since the 2nd half of 2015, the whole wearable market was “cool down”, with the number of new products and investment volume decreasing.

Is Crowdfunding Declining in China?

Crowdfunding plays different roles in different regions. The backers in USA are excited about(or to some extent, in need of) the sense of participation: the development process, bug reports and suggestions. But in China, it is still the consumer mindset that outweighs in the purchase process. Backers prefer getting products from crowdfunding platforms with same quality as what they can get from retailers.

It seems crowdfunding in US is more of “social cause” , like “ our mission is to help bring creative projects to life” from kickstarter; while crowdfunding in China more of commercialization, which makes people less tolerant about products and projects. Also with the “temptation” of the high returns from finance projects, the investment heat changed from hardware crowdfunding to finance and equity crowdfunding by the end of 2014.

In China, the concept of “social enterprise” is growing but still needs more public awareness. Whatever tech companies, would face a “destiny” question: How to survive if BAT are coming to your battlefield? (BAT: Baidu, Alibaba and Tencent). This also applies in crowdfunding when JD crowdfunding platform and Taobao crowdfunding platform picked up the sword in the arena after Demohour took off. JD and Taobao achieved a grand slam in their first try, behind which it is not just about the platform resources such as a larger user base, better user experience, infrastructure with greater support, but also about its exclusive e-commerce sales ability. That means a lot: a guarantee of retail and distribution that can step into stable profitability, a potential way to higher manufacturing quantity for a better cost-down, an opportunity to have direct investment from BAT venture capital… To BAT, it is not a major concern whether crowdfunding business model works or not, because crowdfunding is to them, more about a tool for traffic monetization, new business explore and customer loyalty. Demohour gradually lost its strengths when it still focused on pre-order in the competition with BAT.

Maybe I should rephrase my title: Is independent crowdfunding declining in China?

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