How Crowdfunding Has Powered China's Silicon Valley

By Natallia Slimani, June 30, 2016

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How much are you willing to invest to bring a really cool idea to life? What if it was a personal underwater exploration device? How about a hologram tablet? A robotic butler? 

These are the questions frequently asked on the world’s two most popular crowdfunding websites, Kickstarter (KS) and Indiegogo (IGG). The platforms have captivated public interest by confirming what we’ve always hoped: that an idea can change the world.

By returning to the source of ideas – people – these online forums collect opinions about new inventions from end consumers. If a project is well received, one may be fully funded within a matter of weeks and can trade in financial woes for the (enjoyable) hassle of processing pre-orders.

Crowdfunding platforms have given rise to some of today’s most prominent tech players: the companies behind Oculus Rift, Smart Things, Pebble and more. These overwhelmingly positive results have inspired others to take to the ‘web crowd’ for support.


The World’s Manufacturing Base

As China’s leading electronics manufacturing hub, Shenzhen has used its favorable location and influx of creative spirit from other provinces to take its reputation a step further. 

The city, which prides itself on humble beginnings as a small fishing village, has grown into a hardware hub for millions of international start-ups. These ambitious, often inexperienced companies flock to South China in search of affordable ways to turn their designs into reality.

With an abundance of manufacturing facilities and makerspaces, Shenzhen has more than earned its nickname as China’s ‘Silicon Valley for hardware makers.’ In fact, the city recently ranked among the top five emerging start-up hubs in the world, as published in US magazine Inc.

But just as visionaries flock to southern China to take advantage of the region’s manufacturing clout, so are local factories turning their eyes outward – towards progressive cities like San Francisco, California – to open branches overseas and supply clients with hardware directly. 

Seeed Studio, a company that works with makers and hardware start-ups, opened an office in San Francisco in 2015, as did Blue Clover Devices – the former supplier of electronic parts for Audi and Volkswagen.


Empowering Start-Ups

What is it that makes Shenzhen stand out to seasoned entrepreneurs and young techies? Christophe Branchu, the visionary behind start-up consultant Emie Labs, settled in Shanghai before moving to South China after a fruitless search for creative ventures.

In Shenzhen, he found it all: entrepreneurial spirit, a strong manufacturing base and unending ambition.

Today, Emie Labs helps budding start-ups by connecting them with spacious office facilities and guiding them through the confusion and pitafalls of the Chinese marketing world.

Emie Labs’ acceleration program consults young companies in the essential stages of investment success, including proof of concept (the move from a prototype to a manufactured model), proof of opportunity (performance on crowdfunding platforms) and the search for big sponsors.

The company serves both local and foreign clients, but in Branchu’s experience, it’s the local start-ups that generally require the most help.

“Chinese startups have good tech, but no design or marketing skills,” he says. 

According to Branchu, crowdfunding allows one to create a substantial marketing campaign with little investment. The catch? You need to play by the rules. The key ingredients to crowdfunding stardom are a good story, solid marketing team, passionate introduction video and close relationship with backers.

Branchu sees young companies burning the midnight oil at Emie Labs to present their products in the best way possible when it comes to design, functionality and, most importantly, story. The storyline is an essential part of any start-up campaign, as people fall in love with it long before they test how well a product actually works.

Not all young teams turn to professional consultants like Emie Labs for help. Some take on the challenge single-handedly. 

Zhichongjia is a young company with a firm belief in its product: pet GPS trackers. The IP67 smart waterproof tracker would provide peace of mind for countless dog owners, according to Baymax Liu, the company’s chief marketing officer.

Instead of showing off their project on KS or IGG, however, Zhichongjia has decided to choose a local crowdfunding platform: Jingdong (JD).

Though based on many of the same principles as their Western counterparts, Chinese crowdfunding platforms like Baidu, Taobao, Zhongchou, Jingdong and Tencent Succor (many of which also function as e-commerce sites) take a unique approach, which many local companies find easier to work with.

The vivacious crowdfunding scene has transformed Shenzhen into an epicenter for tech events, from local meet-ups to international conferences, all of which aim to steer fledgling companies in the right direction.

Gatherings like Big Salad, Startup Grind and Mega Startup Weekend bring together creative minds, offering a stage for new products and inventions.


The Gray Area

Shenzhen’s blossoming start-up culture is crushing its previous reputation as a soulless manufacturing base. The excitement surrounding this new era has enticed countless entrepreneurs, and everyone wants to be part of it.

Unfortunately, not everyone can. Roughly 60 percent of all crowdfunding campaigns fall short of their monetary goals and an even higher percentage fail to deliver even after receiving funding.

But with so much commotion surrounding campaigns, it’s easy to see why larger, more established companies would want a shot at attracting the same kind of attention. The desire to utilize trendy, online platforms as a marketing scheme has led to a niche subset of crowdfunders: those who don’t really need it.

“I have been approached multiple times to pose for a video, as a company founder, product inventor or engineer…” reminisces Gary Brown, who asked to be mentioned under a pseudonym.

“The very first time, a factory hired me and a bunch of other foreigners to act as the team that developed this new camera accessory,” he says.

Brown recalls his experience of being “the face” of a crowdfunding campaign, which, in reality, was a project sponsored by a large and well-established factory. 

“They clearly had the money to make this all happen. But they thought a start-up story on a crowdfunding site would get them more attention. And they were right. As far as I know, the project was a success,” says Brown.

Some local factories have been known to go as far as self-funding – i.e. using their own money to sponsor an online campaign to get people talking about the ‘start-up that is getting tons of crowdfunding love.’

Media agencies are quick to follow the heat and pretty soon, the fraud ‘start-up’ campaign snowballs into a viral success story, with the original factory soaking up thousands of new requests for pre-orders.

A remote control DIY plane factory in Shenzhen is one example of a company that has taken such a path to glory.

“We thought it would be easier to get noticed if we had an expat team to represent us,” said one employee of the company, who asked not to be named. “We didn’t need any money, actually – our mini planes were practically ready to ship. But we took the time to rethink out story and chose a small team to represent us on a popular crowdfunding site.” 

The effort paid off and the campaign was completely funded within a few days of the launch. It went on to raise more than USD500,000.


Where We Stand

For young creative types, crowdfunding is still an excellent way to bring ideas to fruition with very few initial resources. The hard stuff comes later. More often than not, young companies are too enthusiastic to spot the logistical problems awaiting them in manufacturing and are unable to revive imperfect products.

For the posers – companies with ready-made technology looking for the spotlight – the process of crowdfunding is easy to exploit. Sure, it may be in their best interest to abuse the system, but with time, duped supporters may grow jaded and lose faith in the entire concept.

Perhaps we have gone too far in our fascination with the start-up. Merely a decade ago, a small company would go out of its way to seem big, and now we are witnessing the exact opposite phenomenon.

Maybe it’s time to step back and start judging companies based on what they create, rather than their dimensions. After all, if you can 3D print your childhood superhero, does size really matter? 


Terms:

Crowdfunding: the practice of funding a project or venture by raising money from a large number of people, typically via the Internet, in the form of a pre-order.

Pre-order: ordering a product from a crowdfunding site before it has been manufactured.

Startup incubator: a company that helps new start-ups develop by providing a set of services, from working spaces to marketing and sponsorship.


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