Fintech Micro Connect Launching Global Exchange Platform to Provide Capital to China’s Small Businesses

Micro Connect, a fintech startup founded in 2021, has within a short term grown to become a global facilitator for institutional investment in micro and small businesses across mainland China.
Backed by some of China’s notable tycoons; Adrian Cheng of Hong Kong property and billionaire Li Ka-shing, Micro Connect is launching a flagship exchange platform in Macau on Saturday.

Micro Connect Flagship Exchange Eyes China’s Micro and Small Enterprise Sector

The exchange platform is expected to open up more than 2,900 brick-and-mortar businesses across 169 Chinese cities. Stores in many sectors of the Chinese economy will benefit directly including retail, services, food and beverage, sports, and culture.

In China, micro and small businesses are defined as companies with less than 300 employees and earning less than 3 million yuan ($435,700) annually. These businesses contributed 60% to the country’s GDP in 2021, according to official statistics released last March.

“Even though they play a big role in the economy and are growing quickly, [micro and small businesses] must depend on savings, family, friends, and also risky loans,” said Charles Li, 61, cofounder and chairman of Micro Connect. “We’ve discovered a solution that will offer ideal funding for ‘the little guy’ and ideal funding for investors.”

The new exchange, approved by Macau’s top leadership in December, will support buying and selling activities of different asset classes, including the relatively new Daily Revenue Obligations (DROs).

DROs run on blockchain technology, providing investors with direct exposure to a business’s daily revenue over a specified period at a pre-determined percentage.

It is also an innovation that allows micro and small business enterprises to access capital without the burden of debt. Investors, on the other hand, can grow their returns incrementally over time, as explained by Micro Connect.

After the soft launch, it would be mandatory for Micro Connect’s businesses to provide proof of 90-day financial records and efficient system connectivity to participate. This requirement has been put in place to ensure businesses are able and can share their revenue on the blockchain.

Within this period investors would be allowed to explore the new exchange platform, where they will access data on potentially attractive investments. Key information would be presented in industry reports and revenue forecasts touching on different sectors, brands, and locations.

Micro Connect is projecting more than 30,000 stores to have signed up on the exchange by the end of the year. Micro Connect’s Series B funding round raised $70 million in 2022, bringing the company’s total equity raised to $120 million.

Its most significant backers in the funding round are the Agricultural Bank of China’s investment arm ABC International, Chuang’s Capital, Horizons Ventures belonging to Hong Kong’s wealthiest businessman Li Ka-shing, and Sequoia China.

Micro Connect’s Series B funding round also attracted the CEO of real estate behemoth New World Development, Adrian Cheng, and Hong Kong’s billionaire Henry Cheng’s son. The company did not reveal the details of its current valuation, as reported by Bloomberg.

Statistics show that China had roughly 40 million micro and small enterprises by 2021. Meanwhile, the COVID-19 pandemic dealt a severe blow to businesses that accounted for about 80% of the company’s workforce.
The strict lockdowns in cities and travel restrictions imposed as part of the government’s response brought the economy to a standstill.

Micro and small businesses were seen as the “driving force” behind China’s economic recovery when the country reopened its borders. In his final government work report, former Premier Li Keqiang announced at the end of 2021 that he would cut the income tax by half for eligible micro and small businesses until 2024.

Before starting his third term in March, China’s President Xi Jinping committed to promoting the growth of these businesses.

Micro Connect’s Li, who is also the former CEO of Hong Kong Exchanges and Clearing pioneered the debut of cross-border trading models, paving the way for the launch of the Shanghai-Hong Kong Stock Connect in 2014 and in 2016 he saw Shenzhen-Hong Kong Stock Connect start operations.

Li touched base with the co-founder and CEO of Micro Connect, Gary Zhang for the first time in 2020 after leaving HKEX. Zhang also co-founded Oriental Patron Financial Group, a cross-border asset management firm.

Li believes his new initiative, Micro Connect’s exchange platform would be a paradigm shift in the way China’s micro-enterprises, ranging from hair parlors to mom-and-pop restaurants would access capital.

“[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,” Micro Connect chairman added. “If there is tremendous adoption, and this becomes explosively large in scale, then you could say it’s actually a revolution rising.”

Investors would for the first time, support these businesses directly, which contribute massively to China’s GDP as opposed to relying on the traditional “Wall Street” style of investment that mainly favors large and publicly listed companies.

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