Deal focus: VCs see potential in karaoke booths

Tracking the rapidly evolving preferences of tech-savvy consumers born after 2000 sometimes requires venture capital firms to play the part of behavioral scientists, studying the digital natives in their natural habitats. In China’s rising middle-class milieu, these environments are increasingly predominated by shopping malls and cinemas.

Vertex Ventures China is taking this approach – alongside several other domestic VCs – by backing the early-stage development of self-service karaoke booth operator Xingtang MiniKTV. As the company tests a small batch of telephone booth-sized units across a number of youth hangouts in Beijing, investors are taking notes on the reaction of post-millennials. 

“We’re constantly trying to discover what upgrades the new generations are looking for,” says Choon Chung Tay, a managing partner at Vertex. “Young people in China sing karaoke a lot, but they haven’t been able to adjust the experience for the mobile phone. This is definitely a goal of the Chinese consumer market, and we’ve found that it can be addressed offline.”

MiniKTV has closed an extended angel and Series A funding round for a total of $15 million, with additional participation from Matrix Partners China, GSR Ventures, DCM, Yunqi Capital, IDG Capital and Chuxin Capital. The company, which is operated by Beijing Haifufan Technology, was formed about five months ago by former employees of Baidu and classifieds site 58.com.

Initial operations have been scant, with less than 50 booths in Beijing going through the technical calibrations that are necessary before attempting a broader rollout. The fresh capital, however, is expected to jumpstart things.

New booths are being prepared for deployment in 10 cities across China within two months, and a fleet of up to 5,000 machines is planned to be in place next year. The company has scoped this network as having the potential to reach up to 500,000 booths.

Much of MiniKTV’s investor appeal stems from its fusion of social media, mobile, shared economy and brick-and-mortar elements. This crossover is considered a potent hook for teenagers who are killing time in public places, keen to spontaneously dabble in some musical fun without the relative formality of gathering friends for a scheduled karaoke room session.   

Each booth houses a karaoke machine with a screen, bar stools, headsets and microphones. Payments and song selections can be made through social networking app WeChat, which can also be used to share recordings online. According to Vertex, the familiarity of these functions bodes well for scaling. 

“It’s pretty instinctive because young Chinese consumers are used to using 2D barcode scanners,” Tay explains. “From what we’ve seen at the booths that have already been put up in Beijing, it’s pretty popular and they’re getting pretty good numbers. I think in time it will catch on in all the cities in China.”

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• Topics
• Greater China
• Early-stage
• Technology
• Consumer
• China
• Venture
• TMT
• Vertex Management (II)
• Matrix Partners
• GSR Ventures
• DCM-Doll Capital Management