Accelerating local startups’ expansion across the world
June 24, 2019
To connect new firms with cash-flush investors, ToJoy enlarges its footprint
ToJoy, a startup accelerator, expects to set up offices across Europe and Asia to help more new Chinese enterprises to go global by connecting them with a vast network of investors.
Founded in 1991, ToJoy is an online-to-offline platform matching startups with investors. It has about 700,000 registered entrepreneurs and investors.
Typically, investors registered on ToJoy seek to plough their surplus capital into potentially profitable ventures or already proven ones like unicorns (startups valued at $1 billion each). They target startups with potential to grow into unicorns or local unicorns that can grow into global enterprises.
ToJoy opened a new office in Paris earlier this month to target West European markets. It had set up similar branches in New York and Vienna last year.
Company executives said ToJoy plans to complete its global expansion by the end of this year. By then, it would likely cover East Europe and much of Asia, including Japan, South Korea, Indonesia and India.
“Though many Chinese companies grow rapidly, few of them succeed in entering global markets,” said Ge Jun, global CEO of ToJoy. “We select projects with innovative ideas, technologies or business models that have already proved successful but lack market penetration and funds. We will connect such startups with suitable investors so they could expand locally, nationally and internationally.”
But ToJoy will steer clear of earlystage startup financing that is usually done by angel investors, series A investors or private equity firms. Instead, it will focus on proven local success stories to help replicate their success on a larger canvas or mass scale.
Over the last three years, ToJoy has helped more than 40 unicorns or potential unicorns to grow. Among its beneficiaries are Sousoushenbian, an app that can provide community delivery service within eight minutes; Hanbond, a provider of customized men’s garments; and the industrial water treatment branch of OriginWater.
Investors registered on ToJoy have assets surpassing 10 million yuan ($1.44 million) each. They buy rights shares, intellectual property of target startups; or help in marketing or supply-chain services; conduct chain-store operations in cooperation with other companies, Ge said.
Wang Haifeng, founder and CEO of Hanbond, said its offline stores have increased from four to 122 across the country within 20 months, after joining ToJoy in 2017. The average revenue of each store is 150,000 yuan to 200,000 yuan per month.
Wang’s dream is to “create a Chinese men’s clothing brand with taste” and the target customers are male professionals in the 26-40 age-group who can afford suits priced 1,000 yuan to 8,000 yuan each.
“Compared with traditional retail business, tailored production will have no pressure of overstocked products. Besides, the demand is continuous,” he said.
When it first expanded operations, the company incurred losses for eight months due to high costs like store decorations and wages. But those expenses were necessary, he said.
“Though there are more than 20,000 customized men’s clothing brands in China, few of them get high recognition. We want to be a brand with scale and market influence,” Wang said.
Investors listed on ToJoy picked up a 45-percent stake in Hanbond for about 30 million yuan, and helped promote its sales, leveraging their connections. Hanbond recruits local employees to run new stores that are set up as part of its expansion. Its shareholders reap rich dividends, he said.
“Hanbond’s expansion (on the back of ToJoy-registered investors’ support) has been 10 times quicker than I could have imagined. Had we explored those cities by ourselves, it would have taken much longer,” Wang said.
He also said Hanbond plans to open 10 stores in 10 cities in Europe. It is eyeing France, Spain and Austria to sell affordable customized clothing with Chinese styles to Europeans.
“The go-global strategy is a necessity for Chinese brands,” he said, adding investors will pay franchisee fee to operate Hanbond-branded chain of stores locally.
According to Ge, the number of Sousoushenbian stores surged from about 1,000 to 350,000 over an eight-month period (August 2018-April 2019).
Similarly, estimated valuation of a coffee brand grew five times to reach 1 billion yuan after coming onboard ToJoy. “Rapid expansion is good for startups that wish to get listed and raise further capital,” Ge said.
ToJoy itself has benefited from its business of matching startups and investors. It charges a service fee after a startup and an investor sign a contract. It also picks up equity up to 25 percent in the startups that register on the platform, and when they expand the number of their stores, it stands to benefit.
The central government’s projects such as the Belt and Road Initiative also encourage companies to go global, which makes ToJoy more promising, he said.
He said ToJoy is also working on helping foreign companies, mainly in entertainment, lifestyle, catering and high technology, to enter China. About 150 overseas-originating projects are on the anvil, he said.
Annette Nijs, economist, China watcher and the founder of The China Agenda, a provider of information on China, said ToJoy is a unique and innovative business model for scaling up entrepreneurial businesses.
Over 2,000 potential unicorns are eagerly waiting in line to have their growth accelerated on ToJoy. By the end of 2025, ToJoy aims to strengthen 3,000 unicorns in total, making it potentially the largest unicorn business accelerator in the world, Nijs said.
Felix Ma, principal at consultancy firm Roland Berger, said incubators and accelerators in China have many revenue streams. They rent out office space, receive government subsidies, invest in startups, or provide entrepreneur-enabling services. The last two streams will likely be the mainstays in the future.
“To do that, they have to spot in advance promising startups and evaluate their potential returns and risks,” he said.
Ma also said many startups are still exploring the domestic market, and sense some risks in entering overseas markets prematurely as the business environment there could be very different from China’s, and pose stiff challenges.
“They have to be successful in terms of market share and profitability in the Chinese market first, so that it is safe for them to offer their products and services, as well as deploy their capital, human resources and business models, in other countries.”