Deal focus: Linctex makes SaaS pay in China

There is a widely-held view among Chinese VC investors that a pure software-as-a-service (Saas) model can’t work in the country: Small and medium-sized enterprises will not be persuaded to pay for a service based on efficiency gains alone; they expect it to help boost top-line revenue.

Fortunately, Linctex Digital, a Shanghai-based design services platform for the fashion industry, does just that. “Linctex is not a company that sells software. For Linctex, the software is just a way to cut into the industrial chain and make money from the production process. I think this is a feasible and scalable business model in China,” says James Wang, a partner at Vision Plus Capital.

Vision Plus led a funding round for Linctex last year and recently participated in another of RMB100 million ($14 million). Wang found the company after an investment in Smart Fabric, a start-up that wants to digitize the textile industry.

Founded in 2015, Linctex’s flagship product is a design platform called Style 3D. A typical design-to-production process takes four weeks: a designer delivers a 2D sketch; sample clothes are produced; a pattern maker deconstructs the clothes into several pieces of stitch-able cloth, aiming to make the best use of material. There is a lot of discussion between designer, manufacturer and pattern maker, and multiple rounds of modifications.

Style 3D takes these discussions into the cloud, speeding up communication and modification and relying on digital rather than physical prototypes. The process is cheaper and faster.

Linctex’s customers comprise fashion brands and garment manufacturers. Brands rely on the platform to optimize workflow and pay a subscription fee. Manufacturers use it to receive orders and are charged volume-based commissions. “Many garment factories have excess capacity with machines sitting idle. If they receive orders from Linctex’s platform, it’s reasonable to ask them to pay a commission,” says Wang.

Those commissions account for the bulk of revenue, but it remains to be seen how sustainable this business can be. Linctex’s competitive edge is based on enabling traditional manufacturers to integrate with modern design processes and generate more orders. Wang warns that the fees are never going to be that high, noting that several foreign software vendors are already exiting China.

The company has responded by pursuing a new revenue stream that involves collaborating with online key opinion leaders (KOLs) who want to develop their own fashion brands. Linctex founder Chen Liu has the requisite manufacturing resources and networks. A small team of designers has been recruited specifically to assist small brands that have no design capabilities.

“These KOLs can save themselves a lot of trouble by working with Linctex. From design to final production, they can rely on Linctex to deal with everything,” says Wang. 

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• Topics
• Greater China
• Early-stage
• Industrials
• Technology
• China
• Vision Plus Capital
• manufacturing