Xiaomi backs Dyson’s Chinese challenger Dreame in $15 million round

Once known for its affordable smartphones, Xiaomi has in recent years been transforming itself into an online mall for consumer electronics by making deals and building relationships with hundreds of hardware and lifestyle startups. And some of its allies are now going after the Western market with their high-end, China-made products.

Beijing-based Dreame, which produces premium hairdryers and vacuums in the style of Dyson but at lower prices, is one of Xiaomi’s latest bets. The startup announced this week the completion of a Series B+ round led by IDG Capital. The financing of nearly 100 million yuan ($14.6 million) also saw the participation of existing investors Xiaomi and Xiaomi founder Lei Jun’s Shunwei Capital, as well as Peak Valley Capital and Edge Ventures.

Dreame makes Xiaomi-branded vacuums and operates its own label, a common setup between Xiaomi and its suppliers, which get to enjoy the security of Xiaomi distribution and build their names at the same time.

The startup has emerged as a cheaper vacuum brand than the area’s pioneer Dyson, whose inventor James Dyson topped the U.K.’s rich list this year. Dreame’s latest handheld cordless broom V11, for example, costs €350 ($413) whereas Dyson’s new model asks for $600.

“If we compare Dyson to Apple, then there must be a Huawei in the [home cleaning] area, and we believe this company will come from China,” co-founder and vice president of marketing and sales Roc Woo told TechCrunch. Domestic businesses are poised to tap China’s rich manufacturing resources, cheaper labor and longer work hours compared to Western counterparts, he asserted.

“There are more and more success stories of Chinese brands going global, from small players like us through to behemoths like Huawei, Xiaomi, Oppo and Vivo.”

The fresh proceeds will fuel Dreame’s marketing and sales efforts in Europe and North America and allow it to spend more on research and development, which tackles the likes of high-speed motors, fluid mechanics, robot dynamics and visual simultaneous localization and mapping (VSLAM), all essential technologies for Dreame’s family of home cleaners and personal care electronics.

The five-year-old startup likes to talk up its robust engineering background. The founding team consists of friends from Tsinghua University, and chief executive Yu Hao made a dent on campus by launching Skyworks, now the prestigious university’s largest hackerspace with sponsorship from industry giants like Boeing and Megvii. A number of its key staff were involved in China’s national spaceship program Shenzhou.

In addition, the startup boasts spending 12% of its annual sales revenue on R&D and operating a 20,000-sqm factory in eastern China’s Suzhou city, where it works to improve its proprietary designs, a growing trend among Chinese startups as Beijing calls for more tech self-reliance.

Xiaomi codependence

Xiaomi doesn’t put all its eggs in one basket when it comes to picking suppliers. In the realm of home cleaning, it has also backed robot cleaner Roborock, which raised about 4.4 billion yuan ($640 million) from an initial public listing on China’s new tech board in February. Xiaomi first bankrolled Roborock back in 2014, four years before its first investment in Dreame.

Woo believed Dreame and Roborock can co-exist, for his company targets a wider product spectrum while Roborock is more focused and akin to iRobot. The startup doesn’t consider Dyson, of which Woo spoke highly, a direct competitor either, for it’s venturing beyond cleaning into areas like smart mobility.

When asked whether Xiaomi picks winners, Woo said “Xiaomi is more of a platform and doesn’t allocate resources.” While it tended to work closely with startups in its early years, Xiaomi’s empire of consumer products runs on the basis of market competition these days.

“Our collaboration with Xiaomi is no different from the way we work with Amazon or eBay. The investment means not much more than having a capital tie-up and a foundation for trust,” he said. Being in the Xiaomi family does provide a practical perk: it’s a guarantee for sales and offers a bargaining chip for Dreame in its negotiation with production partners.

What Xiaomi gets in return is millions of global consumers signed onto its Mi Home app, a central platform for managing Xiaomi-branded Internet of Things. In Europe, its biggest market, Dreame said it strictly follows the GDPR’s rules on data protection.

Boosted with new capital, Dreame is ready to foray into the U.S. by the end of this year. It already derives 70-80% of its sales outside of China, with a concentration in Europe where it saw a spike in orders since the COVID-19 outbreak for its products were sold mainly online.

For the current year, it aims to generate 3 billion yuan ($440 million) in sales, which doesn’t seem far off, given it had shipped more than 1 million vacuums by May since the category’s debut two years ago.