Chinese Tech Giants Entering Equity Crowdfunding Market
Chinese online retail giant JD.com today launched an equity crowdfunding site, its second effort in crowdfunding. Eight months ago, it rolled out a Kickstarter-like site for its smart hardware initiative.
Alibaba Group and Suning, the leading retailers of home appliances and consumer electronics, reportedly are also about to launch equity crowdfunding sites.
On JD’s platform, every round of funding will be led by a professional investor, with qualified users able to join him or her, according to the company. There are or have been two dozen equity crowdfunding sites in China as of the end of 2014, many using the same methods.
Participants are required to have earned no less than RMB300,000 (about US$48,000) in the last three years and have financial assets of not less than RMB1 million (about US$167,000).
It’s as yet unknown how JD, or indeed other sites, will verify professional investors. Nor are there laws or regulations to administer online equity crowdfunding in China. Chinese authorities issued a draft regulation on equity crowdfunding in December 2014. It is reported that the wait for the regulation for online equity crowdfunding to come out is why Alibaba Group is delaying its own site.
Most equity crowdfunding sites believe they’ll muddle through, no matter what they future regulations require. As existing regulations prohibit more than 200 individual shareholders in a company, Chinese crowdfunding sites have figured out a way to enable more than one person to jointly own a stake in private.
Michael Li, founder and CEO of VC.CN (a crowdfunding site connecting angel investors with startups), wrote an article explaining why he didn’t think online equity crowdfunding would work out, at least in China (article in Chinese). Besides the absence of laws and regulations, his main argument was that ordinary Chinese are not aware of the high risks in investing in early-stage startups, so that equity crowdfunding sites or startups may have trouble dealing with investors who find their money gone.
But some equity crowdfunding sites argue that they have set investor requirements that take risk tolerance into consideration. JD said they have a team for post-investment monitoring.
Editing by Mike Cormack (@bucketoftongues)