Hong Kong Billionaire-Backed Fintech Unveils Exchange Platform for ‘The Little Guy’
Financial tech startup Micro Connect — backed by the likes of Hong Kong property tycoon Adrian Cheng and billionaire Li Ka-shing — will roll out its flagship exchange platform Saturday in Macau.
Founded in 2021, Hong Kong-based Micro Connect facilitates global institutional investment in micro and small businesses across China. The exchange will give investors worldwide access to over 2,900 brick-and-mortar stores in 169 Chinese cities, spanning industries such as retail, food and beverage, services, and culture and sports.
Defined as businesses that employ fewer than 300 people and collect less than 3 million yuan ($435,700) in annual revenue, micro and small businesses contributed 60% of China’s GDP by 2021, according to official statistics last March.
“Despite their enormous contribution to the economy, and the strong growth they have, [micro and small businesses] have to rely on savings, family and friends, and also unsustainable loans,” says Charles Li, 61, co-founder and chairman of Micro Connect. “We have found a solution that will provide perfect capital for the ‘little guy’ and perfect capital for the investors.”
On the exchange, which was approved by Macau’s chief executive last December, investors can trade an entirely new asset class known as Daily Revenue Obligations (DROs). Enabled by blockchain technology, DROs are negotiable instruments that provide direct exposure to an agreed percentage of a store’s daily revenue over a specified period. They allow small businesses to leverage new capital without being saddled with debt, while allowing investors the ability to incrementally collect returns, according to Micro Connect.
After the soft launch, Micro Connect’s businesses are required to provide proof of a 90-day operating history and efficient system connectivity, to ensure they can share their revenue on the blockchain. During this period, investors can create accounts on Micro Connect’s exchange to access data on potential investments, including industry reports and revenue forecasts based on sector, brand and location.
Vendors selling fish at an open market in Wuhan.
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Last March, Micro Connect raised $70 million in a Series B funding round, bringing its total equity to $120 million. Its latest backers include ABC International (the investment arm of the Agricultural Bank of China), Chuang’s Capital, Hong Kong’s richest man and billionaire Li Ka-shing’s Horizons Ventures and returning investor Sequoia China. Adrian Cheng, CEO of property giant New World Development and son of Hong Kong billionaire Henry Cheng, also participated in the round. Micro Connect declined to disclose its current valuation.
In 2021, China had 40.3 million micro and small businesses, per government statistics. These businesses, which contributed around 80% of the company’s employment, were hit hard by the pandemic – widespread lockdown measures in cities, along with policies that restricted travel, brought the economy to a standstill.
As China slowly reopened its borders, micro and small businesses were touted as a “driving force” in the country’s recovery. In his final government work report at the end of 2021, Premier Li Keqiang halved the income tax required for qualified micro and small businesses until 2024. Speaking a month before starting his unprecedented third term in March, Chinese President Xi Jinping pledged to support these businesses. development.
The former CEO of Hong Kong Exchanges and Clearing, Micro Connects Li orchestrated the launch of cross-border trading arrangements, including Shanghai-Hong Kong Stock Connect in 2014 and Shenzhen-Hong Kong Stock Connect in 2016. Shortly after leaving HKEX in 2020, met he Micro Connect co-founder and CEO Gary Zhang, who co-founded the cross-border asset management company Oriental Patron Financial Group.
By opening up foreign capital to China’s smallest businesses, from hair salon chains to mom-and-pop restaurants, Li claims his startup could initiate a paradigm shift in investment from a traditional “Wall Street” model involving large, publicly traded companies .
“[The exchange] is revolutionary in concept, in its operating logic, but whether it will be revolutionary for the market or not remains to be seen, says the Micro Connect chairman. “If there’s massive adoption, and this becomes explosively large in scale, you could say that there’s actually a revolution that’s rising.”
