Up until a few years ago, most travelers from China were relegated to group tours – packed onto planes and buses with at least a dozen other tourists, led around on a strict schedule by a guide with a flag and loudspeaker.
But China’s younger generations, with their growing incomes and fewer travel restrictions, are quickly shifting to DIY travel, which offers more flexibility and freedom than group tours. As a result, a huge wave of startups have cropped up to serve their needs. Now the highly-fragmented market is nearing its saturation point.
"It is true that China’s DIY market is already very hot and is trending towards oversaturation," says Robin Shao, CEO and founder of Directions Travel. "But we believe that this is more of a ‘quantity’ oversaturation, rather than a ‘quality’ saturation. There are a lot of companies out there doing this, but they are not necessarily meeting the needs of consumers."
Directions has two core competitive strengths, Shao says. The first is that the startup reaches out to people who have unique experiences and hobbyists in certain fields to introduce unique attractions, restaurants, and accommodation. "We source our trip ideas from individuals who have on the ground experience," he explains. "On our site, users can learn about these people and their background to pick out the one that best matches their interests."
Secondly, Directions uses these human resources to cater to customers who want unique experiences. "Though the independent travel market is hot, there are very few companies that are willing to put in the effort to create products that meet specific needs," Shao says.
But what constitutes a "unique" experience is rather subjective, and Directions doesn’t seem to tackle the most empirical deciding factor for most travelers: cost. Whether the promise of quality can outweigh customers’ budget concerns in this highly competitive market will be critical to the startup’s success.
The company focuses on mid- to high-end customers traveling overseas. Some of Directions’ destinations include the US, Bhutan, Myanmar, and Latin America. Competing travel sites include Lvmama, LY.com, ByeCity, Ctrip, Qunar, Aoliday, Woqu, Tuniu, and many, many more.
An invested crowd
Directions was chosen as one of the 11 inaugural startups to raise funding through ecommerce site JD’s new equity crowdfunding platform. In equity crowdfunding, backers actually take a slice of equity in the company they support in contrast to the rewards-based Kickstarter model. The crowdinvesting site just launched earlier this week, and Directions has already doubled its RMB 2.5 million (US$403,000) goal, surpassing it within the first 24 hours.
"We believed that it would be a fast, efficient way to raise money," Shao says. "For an early startup, the first fund is the most important one, but you cannot spend too much time raising it or you might run out of money before you make it."
Venture capital is no longer the exclusive right of big organizations, Shao says. The equity crowdfunding model also helps attract early supporters. " If they are willing to invest some funds into us, then they will certainly be willing to help us promote and improve our products."
On top of that, it also just announced an RMB 1.5 million (US$242,000) seed investment from Gobi VC. Gobi’s Shanghai-based venture partner Michael Zhu says the firm is enthusiastic about the equity crowdfunding model. "As an early stage VC, Gobi believes that the industry should embrace this type of innovative crowdfunding model. It empowers society, it helps startups grow and improves transparency within the VC industry."
Gobi also invested in another startup that successfully raised funds on JD, spicy seafood delivery company Jacky’s Shrimp. Zhu says the exposure a startup gets through this sort of platform is a huge bonus.
"Usually, a seed stage investment may experience difficulty in getting the word out, especially with how active China’s early stage investment scene is these days. It really builds momentum," he says. "We are also able to raise more money for the company than we would normally be able to at this stage of growth."
Zhu says the the results exceeded his expectations as both companies surpassed their investment goals by over 150 percent in under 24 hours, each with a couple months remaining.
Directions will put the fresh funds toward new products, optimizing existing products, and conducting on-the-ground inspections of its trip packages. It will also spend some cash on improving its IT system and on marketing.
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