The competition among equity or product crowdfunding platforms, especially in mainland China, has become increasingly intense.
In the past year, at least 80 such platforms were closed or forced to transform themselves.
For example, a popular site, demohour.com, which was established in 2011, closed down by the end of last year as more competitors entered the market.
One of the big questions for such platforms, as well as for venture investors, is about getting good projects.
I know some veterans in the venture capital industry.
They told me that, in the early years, few foreign VC funds knew how to identify good projects in China, so it was easier to find new deals.
But now there are too many VCs, foreign and domestic, in China.
Some early-bird crowdfunding platforms easily found quality projects for their platforms in previous years.
For example, Oculus, the maker of virtual reality devices, was listed on Kickstarter.
In mainland China, given the low threshold for launching a crowdfunding platform, many rushed into the industry, and not all of them are trustworthy players.
Xiaoniu, an electric vehicle maker, once raised a big amount on JD Finance’s crowdfunding platform.
However, several severe quality issues were reported after the subscribers received the product.
Some other projects even failed to deliver their product on time.
Users of crowdfunding platforms have, therefore, become very cautious and doubtful, and many investors are gradually turning to bigger platforms, like JD Finance, Taobao Zhongchou (crowdfunding) and Suning Zhongchou.
The big players benefit the most.
Those three big platforms together raised more than 2.5 billion yuan (US$390 million) for projects on their platforms last year.
Although projects may also fail on these platforms, people generally have more confidence in the big platforms. So the biggest are growing stronger.
The whole industry is now faced with a bottleneck.
Fewer promising projects, more fraud and slower growth of new traffic to crowdfunding platforms have generated a vicious circle.
So, many investors are returning to the VCs.
This article appeared in the Hong Kong Economic Journal on April 14.
Translation by Myssie You
[Chinese version 中文版]
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