China start-up You+ to focus on tier 1 cities for now
Xiaomi-funded provider of community space to focus on major cities first
You+ International Youth Community, a mainland start-up providing cosy accommodations to young dream chasers, has no plans to expand beyond the four first-tier cities, but will test new products, including financial services, among its tenants.
Company chairman and co-founder Liu Yang told the South China Morning Post that it will soon open two projects each in Beijing and Guangzhou, and another two in Shanghai in July. That will take the total number to nine, as it is already operating three in Guangzhou where he first started the venture in 2011 after selling his own home in Shanghai for funding.
"We are not rushing to second-tier cities now," Liu, who is in his early 40s, said in an interview in Beijing. "We haven't solidified our foundation in first-tier cities yet. We are still looking for opportunities in Shenzhen."
More projects will open in these four cities as demand far exceeds what he can accommodate now. For example, the Beijing project in Suzhouqiao near Zhongguancun area has attracted more than 2,000 applicants for its 400 rooms.
Second-tier cities such as Xi'an, Chengdu and Hangzhou are also on the radar for the next-phase of development. "But we haven't decided when to expand into these cities," Liu said.
Liu burned through all his own money before the first project was open for tenants, as he found the sound insulation was not adequate and needed more money, so he was forced to borrow for a second time from friends.
In 2012, angel investors gave him a few million yuan to open the second project in Guangzhou and last August the founder of Chinese smartphone maker Xiaomi Lei Jun provided 100 million yuan (HK$126.6 million) for further expansion.
But he needs more. He is in a business that demands heavy investment but offers thin profits. He needs to rent existing unsuccessful properties to refurbish them into trendy and cosy flats with vibrant social activities in the big shared sitting room so that young tenants can share their experiences and resources to help each other be more successful.
Before he starts his second round of fundraising, Liu sold over 3 million yuan of debt through a P2P lending platform to his tenants and other investors last month, offering returns of up to 12.5 per cent per annum. They were sold out in minutes.
It was a test of tenants' love for the You+ community and the high return is a reward, Liu said, adding that future products may be of lower yield but still competitive.
As bondholders, tenants will have more incentives to point out problems in the community's daily operations and propose solutions, he added. The company has no bank loans.