Charles Li’s small-business lender Micro Connect asks staff to invest in the start-ups it backs out of their own pockets

Micro lender says having employees invest their own money is a key step in transitioning from an investment platform to an exchange
Article on WeChat had claimed Micro Connect was asking employees to invest one million yuan each

Banking & finance

Yuke Xiein Beijing

Published: 8:30pm, 14 May 2024

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Micro Connect, a small-business financing platform co-founded by the former head of the Hong Kong stock exchange, Charles Li Xiaojia, said it is asking staff to invest in the start-ups it backs, confirming an online article that sparked widespread discussion on social media.

In an internal email attributed to Li and his fellow founder and vice-chairman Gary Zhang, the company said it is gearing up to enter the next phase of its development, where it will “employ the money and power of the market” to support small businesses, rather than relying on its own resources.

The Hong Kong-headquartered firm said that having employees invest their own money is a key step in allowing Micro Connect to transition from an investment platform to an exchange. Over time, it hopes to draw more capital from the market to participate in the new revenue-sharing scheme that it is developing.

“And who is the most familiar with our revenue-sharing scheme? The several dozen frontline workers on the investment team that Micro Connect has nurtured and cultivated over the past few years,” wrote the co-founders.

The email was first reported by 36Kr, a Chinese online news outlet. Micro Connect confirmed the accuracy of the internal email but has not yet responded to the Post’s request for additional comment.

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Employees referred to by Li and Zhang as “leading sheep”, or trend setters, will be helming specialised investment teams and funding projects out of their own pockets with partial subsidy from the company, according to the email.

Founded in 2021, Micro Connect finances small retailers such as restaurants and hair salons that do not have access to traditional bank lending to fund their expansion.

The company takes a cut from the retailers’ daily revenues until the principal is repaid, and lists the revenue contracts on a financial assets exchange it launched in Macau last summer. The contracts can then be bought and traded by international institutional investors.

In its internal letter, Micro Connect said it had so far provided 4 billion yuan (US$552.7 million) of funding to more than 13,000 businesses using this method, and that the quality of its assets “were recognised by ratings agencies and international big banks.”

Micro Connect acknowledged, however, that its business model pivot will bring “inevitable pains and challenges”, and that certain job functions could be “cancelled or adjusted.”

The email came after an article blew up on WeChat, a popular Chinese messaging app, saying that Micro Connect has been asking employees to invest one million yuan each to establish special-purpose vehicles with the company to invest in certain retailers that are planning to list on Micro Connect’s exchange.

The request came with strings attached. For example, employees can only get their one million yuan back if the investments break even, or if the retailers’ net asset value exceeds 10 million yuan in the event of a liquidation.