Deal focus: Kujiale embraces SaaS

Kujiale has achieved unicorn status with an extended tranche of a Series D, marking the successful completion of a pivot by the Chinese online interior design platform from focusing on consumers to targeting business. The size of the round – led by Hillhouse Capital and featuring Shunwei Capital and GGV Capital – wasn't disclosed, but Victor Huang, the co-founder and chairman, tells AVCJ the valuation is nearly double the $600 million from the Series D.

Founded in 2011, Hangzhou-based Kujiale was most readily compared to US-based Houzz, which connects homeowners and designers for home remodelling and design. The company offered a platform that provides homeowners with simple tools to create designs and renders them in a 3D preview format. Interior design was previously dominated by 2D graphics. Even companies capable of 3D renderings took a week to make a small change. Kujiale's cloud-based service cuts the process from days to seconds.

"I've been watching the home decoration industry in China for many years. It's huge with numerous start-ups in different areas. Kujiale stands out due to its strong computer technology background," says Michael Mao, a founding partner at Yunqi Capital, an investor in the company. "They were initially not familiar with the industry, but they've shown strong learning capabilities and developed a deep understanding of the business logic. "

China's home decoration industry will be worth more than RMB5 trillion ($708 billion) this year, according to ASKCI Consulting. Some of the best-known operators include Guangzhou Shangpin Home and to8to. They, like Kujiale, pursued the consumer segment.

"When we launched Kujiale, everyone in the market only cared about internet traffic. As a consumer-facing business at that time, we also believed that as long as we could gain traffic, revenues would come naturally," Huang, one of three co-founders, explains.

This assumption proved to be misguided. Traffic didn't translate into regular usage and there wasn't enough revenue to make the buiness sustainable. One solution was to move downstream: combine the online platform with a complementary set of decorating and furniture supply services. Shangpin Home and to8to both did this, aiming to become one-stop home-decoration platforms. But Huang opted for something different.

"All three of us have a computer graphics background. If you add the offline service part, your software background – which is your competitive advantage – can no longer lead business development. Maybe only 10% of user's satisfaction would depend on software quality and 90% on the offline operation," he says.

Going soft

Kujiale instead evolved into software-as-a-service (SaaS) platform serving corporate customers. Shangpin Home has since broadened its offering with a PC software product for home design, but Huang isn't concerned about the threat, arguing that his cloud-based system is superior. Moreover, the company has received a vote of confidence from the homeowners that have used its platform for free over the years.

Chinese enterprises are generally reluctant to pay for software, but homeowners have converted decorating and design companies into customers. When someone approaches a designer asking them to redecorate their home based on a Kujiale 3D image, the designer can only see it by using Kujiale. Not signing up for the service could result in lost business.

Those basic features remain, essentially serving as a marketing tool – although homeowners can still buy decorating materials through the platform. Revenue now comes from charging an annual subcription fee to decorating and design companies. Subscribers can use Kujiale to promote their own suppliers to homeowners as well as examine designs sent to them.

The Kujiale database covers 90% of floor plans in China. It allows designers to search previous projects for specific residential buildings as reference points for their work. Approximately eight million registered designers are now signed up as users, accounting for 40% of the national total. In 2017, Kujiale generated revenue of more than RMB300 million.

"The Chinese decorating market is fragmented with many small players," says Mao of Yunqi. "Kujiale is building a new industry standard and integrating previously separate elements of the supply chain."

Expansion plans

Now operating under an asset-light business model as a SaaS provider, the company has a three-pronged expansion plan.

First, Kujiale will start offering decorating services for offices and retail outlets. Commercial properties tend to be larger than residential space, so the challenge is computing power. Kujiale currently has 3,000 distributed computers and nearly 10,000 virtual servers in the cloud. An upgrade of the overall cloud infrastructure, as well as new data center investments, can pave the way for 3D designs of commercial property, Huang says.

Second, the company wants to develop overseas markets – an easier process with a B2B rather than a B2C platform. Kujiale has launched an international product line called Coohom to provide "the fastest 3D home decor and product visualization engine" in 134 countries and regions. It has established branch offices in Singapore, Malaysia and the US. Huang notes that replicating the business in Southeast Asia should be relatively simple due to the similarities with China, but he acknowledges more tailoring is required for the US.

Third, Kujiale is expanding into manufacturing. It is collaborating with software companies that specialize in production management, so as to bring the design closer to the factory floor. A designer will be able to generate production data for the manufacturer, enabling greater customization and a faster turnaround.

Kujiale's Series D round, which closed in March 2018, was worth $100 million. It was led by Shunwei, with participation from Temasek Holdings-owned Pavilion Capital. Additional commitments came from existing investors IDG Capital, GGV – which led both the Series B and C rounds in 2014 and 2016 – Yunqi, Hearst Ventures, and Linear Venture.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Greater China
• Consumer
• Expansion
• China
• Hillhouse Capital Management
• Shunwei Capital Partners
• GGV Capital
• Yunqi Partners