In this first blog post of “Charles’s Take” (available in Chinese), I essentially outline the key points in the Open Letter to the Investment Community from Gary and myself in lay person terms in Chinese and the blog aims to address the following questions:
- Why do we want to focus on small businesses?
- Why do we believe this is now feasible?
- In what ways is this similar to or different from the prevailing fintech or internet financing activities for small businesses?
- Why did I not pursue this initiative at HKEX?
- How can we support small businesses and the entrepreneurs behind them?
In short, small businesses have been the backbone of the Chinese economy, contributing to the bulk of the nation’s economic growth, fiscal revenue and employment thanks to the hardworking, aspiring, small entrepreneurs across the grassroots.
Despite our conviction that small businesses as a whole represent an unprecedented blue ocean for global investors, this “new world” of investing has remained inaccessible to date. Credit financing does not align with small businesses’ unique needs and circumstances and traditional equity financing is extremely difficult to implement due to the lack of scale, transparency and cost effectiveness in the execution process.
Thanks to the advanced level of digitalization in the Chinese economy, particularly at the level of small businesses, we are ready to crack open this “mission impossible”. At Micro Connect, we consider it our mission to pioneer a new investment paradigm to connect capital with small businesses to support and participate in their growth.
The key components in our investment strategy of making a huge number of small individual investments include: (i) a proper, fit-for-purpose product that is equity in essence but revenue sharing in form; (ii) a partnership network with key industry and technology leading enterprises who serve as our Connect and Collect Partners, (iii) an AI-enabled progressive position allocation strategy; and (iv) an exchange-enabled ecosystem for price discovery and market liquidity.
Micro Connect’s investment strategy is different from the prevailing fintech and internet financing models for small businesses in China in the following important ways: (i) our source of investment capital is international institutional investor based rather than the domestic banking or wealth management systems or public markets; (ii) our model is to finance growth and capex through equity-like investments rather than funding working capital in the form of credit; (iii) we do not provide consumer credit; hence (iv) our investment returns come from the growth of small businesses rather than interest spreads.
At HKEX, I largely focused on working with my colleagues and the industry to develop mutual market access, modernise Hong Kong’s market structures and reform the listing regimes. Although embracing technology was an important part of the strategy that I had contributed to developing, HKEX is still fundamentally a highly successful central marketplace for listed companies with scale, maturity and track records. It would be difficult, if at all possible, for me to contemplate pursuing an alternative market structure for small businesses. It was therefore the right thing to do, for me to step down and pioneer this new approach on a separate journey.
To provide our full support for small businesses and the entrepreneurs behind them, we seek to build a new market infrastructure that is tailored to their development needs. By connecting small businesses, global investors and leading industry partners, we aspire to build a network for entrepreneurs to access funding, operational expertise, strategic partnerships and mutual learning. Following the establishment of its Micro Connect, we are currently building a new digital exchange platform to pioneer a new way of capital formation for small businesses and a 2E (to entrepreneurs) “social media service platform” for small business owners and entrepreneurs.
My blog post in Chinese has expanded on the messages above to convey my motivation for establishing the new venture. For more of our genesis, investment plan and strategy, I invite you to read our Open Letter to the Investment Community and Open Letter to Entrepreneurs.
Charles Li