Making room for a lucrative business

In Huangshan, a city in Anhui province and home to one of China’s most visited mountains with the same name, B&Bs typically raise funding from multiple investors.

For example, 4.5 million yuan in financing is raised in equal amounts from 100 investors. So, each investor chips in with 45,000 yuan ($681,800), and stands to reap 1 percent of eventual profit from the business. Some investors may pump in more, in multiples of 1 percent stake, and would be entitled to proportionate profit, according to the prospectus of Zhan Yuan, a B&B firm founder, on a crowdfunding platform.

In mid-August, Zhan, an architecture designer and lecturer, launched a plea for 200,000 yuan on a crowdfunding platform to refurbish a farmhouse into an eight-room B&B.

Within one week, some 200 people pitched in with their contributions that added up to some 3 million yuan.

Zhan’s project, Above Cloud, was one of some 400 projects that have successfully secured financing through a crowdfund platform. The latter boasts total funding of 1 billion yuan so far.

“I believe that B&Bs will be profitable in the long run. A keen guest of B&B myself, I do think capital will help B&Bs to grow — they can hire more talent, improve living conditions, and build up their brand, too,” said Lin Zihao, 29, an automobile engineer who invested 120,000 yuan in two projects.

Since 2015, venture capital of all kinds, including that from private equity firms and crowdfunding platforms, has been pouring into new B&Bs.

“Capital chases profits. Venture capital is keen about B&B because investors think B&B expansion is a natural result of upgraded consumption. B&B is not just accommodation. It is lifestyle. In some ways, venture capital is upgrading too, from putting money in tangible products to funding development of diverse lifestyles,” said Tang Tingting, investment partner of Wuhan-based Certain Capital.

In many cities and towns, B&B is supported not only by the capital market but local authorities.

B&B, as a segment of the hospitality business, has become an economic growth driver for some counties and cities, boosting revenue and creating jobs.

Yuan Hong, an IT engineer who used to work in Hangzhou, went back to his hometown Chun’an county in 2015 to start a B&B with his parents.

Revenue from the six-room property beside Qiandaohu (or “thousand-island lake”) in 2016 was about 300,000 yuan. The family of three hired two helpers early this year to set up another B&B in a rented house owned by a neighbor. They transformed it into a lakeside villa with 400,000 yuan funding from a small venture capital firm in Hangzhou.

Wan Dezhu, a village leader in rural Ningbo, said that B&B helps increase not only average income of local families but social stability.

“Young residents who were unemployed now turn to helpers at B&B. They have an aim in life. And they are quite happy with their jobs,” he said.

The B&B segment has been expanding fast despite concerns about lack of clear