Hong Kong Billionaire-Backed Fintech Unveils Exchange Platform For ‘The Little Guy’

Financial technology 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 investments in micro and small businesses across mainland China. Its exchange will give investors around the world access to over 2,900 brick-and-mortar stores in 169 Chinese cities, spanning industries such as retail, food and beverages, services, and culture and sports.

Defined as enterprises employing less than 300 people and garnering less than 3 million yuan ($435,700) in annual revenue, micro and small businesses contributed 60% of China’s GDP in 2021, per official statistics last March.

“Despite their huge 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 borrowing,” says Charles Li, 61, cofounder and chairman of Micro Connect. “We’ve found a solution that will provide perfect capital for ‘the little guy,’ and perfect capital for the investors.”

On the exchange, which was authorized by Macau’s chief executive last December, investors can trade an all-new asset class known as Daily Revenue Obligations (DROs). Enabled by blockchain technology, DROs are tradable instruments that provide direct exposure to an agreed percentage of a store’s daily revenue over a specified period. They allow small businesses to tap into fresh capital without becoming saddled by debt, while allowing investors the ability to incrementally collect their returns, according to Micro Connect.

Following the soft launch, Micro Connect’s businesses are required to provide proof of a 90-day operating track record and effective system connectivity, ensuring they can share their revenue on the blockchain. During this period, investors can create accounts on Micro Connect’s exchange to access data about potential investments, including industry reports and revenue predictions based on sector, brand and location.

Last March, Micro Connect raised $70 million in a Series B funding round, bringing its total equity raised 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, the CEO of real estate 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 halt.

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 in late 2021, Premier Li Keqiang halved the income tax required for qualifying micro and small businesses until 2024. China’s President Xi Jinping, speaking a month before starting his unprecedented third term in March, vowed to support these businesses’ development.

The former chief executive of Hong Kong Exchanges and Clearing, Micro Connect’s Li orchestrated the launch of cross-border trading schemes, including the Shanghai-Hong Kong Stock Connect in 2014 and Shenzhen-Hong Kong Stock Connect in 2016. Shortly after departing HKEX in 2020, he met Micro Connect cofounder and CEO Gary Zhang, who cofounded cross-border asset management company Oriental Patron Financial Group.

By opening up foreign capital to China’s smallest enterprises, from hair salon chains to mom-and-pop restaurants, Li claims his startup could instigate 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 or not will become revolutionary for the market is yet to be seen,” adds the Micro Connect chairman. “If there is tremendous adoption, and this becomes explosively large in scale, then you could say it’s actually a revolution rising.”