The Development of Crowdfunding in China

2016 The Development of Crowdfunding in China

The Development of Crowdfunding in China Industry Overview Crowdfunding means the project initiators publish their creative ideas to investors through internet and raise funds from investors by offering material objects, service or stock rights. Crowdfunding mainly includes three participants: fund-raiser, platform operator and investor. The fund-raiser is the project initiator who builds project in crowdfunding platform, introduces the product, creates ideas or requirement and sets financing deadline, financing pattern, total amount and expected rate of return. The operator platform is the crowdfunding website which is responsible for audit and shows fund-raiser’s project and offers service. Through browsing all kinds of projects in platform, investors will choose proper projects to invest. According to the reward methods of project, the crowdfunding can be divided into reward-based crowdfunding, equity-based crowdfunding and donation-based crowdfunding. Reward-based crowdfunding offers material objects or service in return. Equity-based crowdfunding sells company’s stock in certain proportion to general investors, and the investors may get benefits through selling their shares in the future. Donation-based crowdfunding is the non-profit crowdfunding. As an emerging industry in growth stage, crowdfunding has got a considerable development in China driven by encourage business starting and innovation among public policy and social trends. A batch of excellent crowdfunding platforms and projects emerged. The crowdfunding patterns and products keep changing in new way. Crowfunding industry wins more attention and expectation. The following table shows the development history of crowdfunding in China.

Table1: The Chronicle of the Development of Crowdfunding in China 2011

DemoHour, the first domestic crowdfunding platform, went online, opening the first page of crowdfunding in China

2013

Taobao Crowdfunding, subordinate of Alibaba, went online, marking e-commerce giants formally enter crowdfunding industry

The number of crowdfunding platform reached more than 100 in China The internet giants of China, such as Jingdong, Alibaba, Tencent, 2015 Suning, Baidu, Qihu360 and Le TV, all began to involve in crowdfunding field The subdivision fields, such as second-hand car crowdfunding, physical store crowdfunding and screen culture crowdfunding, 2016 develop well. The total number of platform has exceeded 350 and the successful financing amount has reached USD 3 billion Data source: Yincan Consulting 2014

1

www. wdzj.com

2016 The Development of Crowdfunding in China

The Overall Conditions of Crowdfunding in China In 2015, the total successful financing amount of crowdfunding in China was USD 1.71 billion, more than five times of that in 2014. From January to August of 2016, the total financing amount of crowdfunding was USD 1.57 billion which successfully reached 92% of funds raised in 2015 within only 8 months. According to predication, by the end of 2016, the total financing amount in the whole year is going to break through USD 2.24 billion.

Data source: Yincan Consulting Figure 1: The Successful Financing Amount of Crowdfunding in China By the end of August of 2016, the number of crowdfunding platforms in China has reached 380, increasing almost 100 than 2015. According to the data of 2016, the platform number presents stable growth trend. By the end of 2016, the number of crowdfunding platforms will be expected to reach 400.

2

www. wdzj.com

2016 The Development of Crowdfunding in China

Data source: Yincan Consulting Figure 2: The Number of Crowdfunding Platforms in China The Development Conditions of Various Types of Crowdfunding Platforms By the end of August of 2016, reward-based crowdfunding platforms reached 165, with a big growth rate of 150% than 2015. Equity-based crowdfunding platforms reached 131, basically the same as 2015. Donation-based crowdfunding increased 50% than 2015. The number of mixed crowdfunding (including more than one kind of reward method) platforms was 8.86% less than 2015.

Data source: Yincan Consulting Figure 3: The Number of Various Types of Crowdfunding Platforms in China From January to August of 2016, there were 47,155 projects successfully financed through crowdfunding in China. Among them, reward-based crowdfunding totally finished 35,285 projects 3

www. wdzj.com

2016 The Development of Crowdfunding in China

and donation-based crowdfunding totally finished 8,224 projects, both surpassing the whole year data of 2015. Equity-based crowdfunding successfully finished 3,646 projects.

Data source: Yincan Consulting Figure 4: The Successful Project Number of Crowdfunding in China From January to August of 2016, the financing through reward-based crowdfunding was USD 863.98 million, occupying over 50% of the total financing amount. The successful financing amount of equity-based crowdfunding reached USD 665.02 million, already occupying 85.72% of 2015 total level. The successful financing amount of donation-based crowdfunding is USD 42.30 million.

Data source: Yincan Consulting Figure 5: The Successful Financing Amount of Crowdfunding in China There were totally 75.78 million investors investing through crowdfunding platforms from January to August of 2016, more than the whole number of 2015. The popularity of reward-based 4

www. wdzj.com

2016 The Development of Crowdfunding in China

crowdfunding increased faster, with 36.07 million investors. Though the successful funding amount of donation-based crowdfunding is less than half of 2015, the popularity of early eight months in 2016 is almost the same as whole 2015. Due to the high requirements and strict policy, the participants of equity-based crowdfunding is only 0.05 million investors, less than half of whole 2015.

Data source: Yincan Consulting Figure 6: The Number of Investors of Crowdfunding in China Areal Distributed Conditions of Crowdfunding Platforms in China By the end of August of 2016, crowdfunding platforms in China distributed in 27 provinces, most in coastal regions with relatively developed economy. As the initiative places of crowdfunding industry, the aggregation effect is obvious in Beijing and Guangzhou. Beijing and Guangzhou owned most normal operational platforms in China. According to our statistics, the number of Guangzhou ranked first with 94 platforms, Beijing ranked second with 89 platforms, Shanghai ranked third and Shandong ranked fourth, with 57 and 34 respectively. Zhejiang ranked fifth with 24 platforms and Jiangsu ranked sixth with 17. The normal operational platforms in Guangzhou, Beijing, Shanghai, Shandong, Zhejiang and Jiangsu listed in top six of the whole country, accounting for 81.32% of total normal operational platforms.

5

www. wdzj.com

2016 The Development of Crowdfunding in China

Data source: Yincan Consulting Figure 7: Geographical Distribution of Crowdfunding Platforms in China From January to August of 2016, about the geographical distribution of the successful financing amount in China, Beijing, Guangzhou and Zhejiang listed in the top three, with successful financing number USD 531.09 million 、 USD 350.67 million and USD 278.03 million accordingly. Among them, Guangdong and Zhejiang have already surpassed their total financing amount in 2015. Shanghai ranked fourth with financing amount USD 148.43 million. Jiangsu ranked fifth with financing number USD 122.87 million. The successful financing amount of top five mentioned above occupy 91% of total financing amount of whole country. These places investment consciousness is strong and have much policy support from government. Therefore, in middle or short term, the crowdfunding scale in China is determined by these areas. For other areas which have crowdfunding platforms, they only successfully financed USD 140.21 million, with an obvious regional difference.

6

www. wdzj.com

2016 The Development of Crowdfunding in China

Data source: Yincan Consulting Figure 8: Geographical Distribution of the Successful Financing Amount in China The Prospect of Crowdfunding Industry in China In 2016, the crowdfunding industry still develops in a high speed, the number of platforms and investors increases quickly. The subdivision fields, such as second-hand car, architecture and restaurants, begin to emerge and develop rapidly. At the same time, some housing crowdfunding platforms have been stopped because of the policy. Supervising idea gradually becomes clear, government will encourage and support the development of crowdfunding. Meanwhile, the government lists the equity-based crowdfunding as important renovating field, issuing the Specific Rectification Work Plan for Internet Financial Risk and standardizing the crowdfunding industry. Concerning the development trends of crowdfunding industry in the future under this background: 1. Supervision tends to be strict With the one year specific rectification work of internet finance carried in the whole country, crowdfunding industry enters into integration and specification period. The specific rectification work plan lists the equity-based crowdfunding as rectification project and sets many red lines for it, such as equity-based crowdfunding platform can’t publish fake projects, can’t adopt self-raised and irregular fund raising. The specific rectification work will be carried on. Some platforms may rectify or exit under the supervision and rectification. The whole industry may become standardization. 2. Venture capital accelerate to join in With the high-speed development of crowdfunding industry, the institutions of venture capital begin to be interested in this industry and accelerate to join in. According to the fund raised from crowdfunding from January to August of 2016, 11 platforms got financing, the famous venture capital like Tencent and Lacarra joined. As the continuous creation of crowdfunding pattern and business model, more capital will be attracted into this industry in the future.

7

www. wdzj.com

2016 The Development of Crowdfunding in China

3. Crowdfunding industry enters into refinement With the entering of internet giants like Jingdong, Taobao, Suning and Xiaomi, the small and medium-sized platforms are difficult to compete with those giants who own abundant resources and capital. Building own specific feature becomes an important factor for platforms in this industry. More and more platforms tends to be small sized and specific. They have not many projects but the success rate is high or they pay attention to certain subdivision crowdfunding field, such as second-hand car, architecture, restaurants and etc. Subdivision and refinement will become the development trends of crowdfunding. Undoubtedly, 2016 is the compliance and supervision year of internet financial industry. As the issue of Charity Law, the donation-based crowdfunding platform may be divided into two kinds for projects in future—rescue crowdfunding and charity crowdfunding. Due to without law restriction, the determination and cost of rescue crowdfunding may mainly judge by contributors. By contrast, charity crowdfunding is restricted by Charity Law. So the operation of platform should be regulated by law and the possibility of fake projects is far less than rescue crowdfunding. Under the backgrounds of government encouragement and strict supervision, and the giants like Jingdong Owner, Daidu Baizhong, Ants Dake, 360 Taojing and Suning’s private equity joined in, crowdfunding, especially equity-based crowdfunding mode will gradually move toward a normalization, healthified and popularity development way.

8

www. wdzj.com