Untapped Global on Wefunder 2021
Emerging market (EM) countries are experiencing rapid economic growth, making them attractive for investors seeking high returns. There are many ways to invest in EMs, but there aren’t many solutions that focus on using real-time data to mitigate the risk for retail investors. Investing in EM economies can be daunting and complicated, so a lot of small businesses in EMs can be easily overlooked.
Untapped Global is a financial technology startup building a platform for retail investors who are looking to make an impact by investing in EMs. The company’s Smart Asset Financing platform tracks data in real time and makes investing in EMs less risky, allowing more people to invest. We reached out to Untapped Global’s founder and CEO Jim Chu to hear more about the company’s inspiration and some of its strategies.
Note: This interview was conducted over phone and email. It has been lightly edited for clarity and length.
In your own words, how would you describe Untapped Global?
Opportunity is unevenly distributed in the world, and that means there’s tremendous untapped potential, especially in emerging markets. We created Smart Asset Financing™ to create opportunity by putting revenue-generating equipment in the hands of entrepreneurs who don’t have access to traditional loans or grants but are successful and ready to scale. The assets we finance – such as Uber cars, electric motorcycles, and water dispensers in grocery stores – are tracked in real time along with data on how much money they make. We use this technology and data to make it easier, safer, and more scalable to finance millions of small businesses in emerging markets.
What inspired you to take the leap and start this company?
I worked in tech for 20 years before I went as a volunteer to Haiti in 2010 after the 7.0-magnitude earthquake. After seeing billions of dollars of charity achieve few lasting results, I realized that sustainable change would only happen if local entrepreneurs lead the way. This led me to launch a social business that today serves thousands of Haitians safe drinking water via a local entrepreneur-led distribution network of more than 700 small retailers across the island.
The social business I founded is still providing the safe drinking water that I went to Haiti to deliver back in 2010 but in a way that is far more sustainable and empowering for the local economy.
Untapped is the globalization of what we started in Haiti. I created Untapped specifically to address the problems I saw in the aid and development effort in Haiti in the aftermath of the 2010 earthquake – to empower people to help themselves. To do that, we had to overcome a major hurdle we discovered as we tried to grow our business: the capital to grow our company wasn’t available simply because of where we were operating.
We created Untapped to solve the problem that I faced trying to scale my social business’s impact but on a broader scale. Untapped still finances water infrastructure, but also energy and transport, because we see the same problem and opportunity across many industries in frontier markets. The digitization of revenue-generating assets (like water pumps, solar panels, and motorbikes) and innovation in digital payments offers a unique opportunity to reinvent how financing is done in frontier markets by reducing the risk and increasing the scalability of financing to more small businesses.
Who is on your team and how did you come together?
Our team is a mix of people from around the world, all coming together as we were operating in the Africa startup ecosystem. I have been actively investing in Africa, with more than 50 investments from North Africa to the southern tip of the continent, and met some talented people that shared my passion and belief that impact comes through economic empowerment.
How is Untapped Global transforming impact investing in the emerging markets industry?
Untapped Global is transforming impact investing in emerging markets by making it safer, easier, and more accessible to the everyday investor. We often see investors flying into places like Naiirobi, Cape Town, or Lagos, seeing the potential of the markets there. Then, they invest – but often inefficiently.
We want to bring that opportunity to invest in the same and many more similar entrepreneurs. We do it via a digital investing platform that allows any person in North America, Europe, and elsewhere to invest safely in Africa with an investment as small as $500, which they see paid back with a return after as little as six months. We want to make impact investing mainstream and easy for everyone, not just the rich.
How do you identify international companies and what are the risks in investing through Untapped Global Smart Asset Financing platform?
The way we source companies is pretty standard. We are very much part of the investment ecosystem in Africa, with offices in several of the major tech hubs including Cape Town and Nairobi. Through partnerships with venture firms (some of which we are investors in) and just being immersed in the ecosystem, we get a constant inflow of potential companies.
But our due diligence on companies is very different from the typical financier or lender. We rely heavily on data to manage risk. When a company comes to us, we go through a due diligence process that can take as little as a few days and give companies a small check to start working with us. With that first check, we integrate with their systems and start the flow of real-time data on how their assets perform. So we check: 1) what their real unit economics are – not just what’s in a spreadsheet – and if they can consistently deliver it, and 2) how good their data and data systems are. If both satisfy our requirements, we can give them a second, larger check in a matter of months or weeks, which then allows us to evaluate if they can do the same thing at scale. The checks get progressively larger until we reach several million dollars. We’ve gone from a $50,000 pilot to $3 million in under six months, which is about the time it takes a lender to make a lending decision, but we’ve been helping them grow their business the entire time.
And because we are monitoring their performance in real time since we’ve integrated with their data systems, we can use this data to manage risk. We know right away when their business starts to stall or when it picks back up again. So we can determine whether we should give them their next tranche of financing using that information, versus conventional lenders who use stale financial statements that are backwards-looking and can often hide the performance of the company’s core revenue-generating assets.
We call our due diligence process an iterative data due diligence, and it helps us identify who we scale up with, i.e. who best deserves our Smart Asset Financing with the best returns and lowest risk.
What does the competitive landscape look like, and how do you differentiate?
Competitors break down into three main categories:
a) Operating companies that deal with smart assets and decide they want to build an investment platform to raise money for asset financing.
b) Investment platforms that seek to fundraise for micro-loans in emerging markets.
c) Traditional financial institutions and lenders who want to do more “fintech.”
All three are doing some elements of this, but there are limitations:
(a) Operating companies have a hard time achieving the scale and diversification to make it work. This group is growing fast, and we see them as our customers since we pool their financing needs to make it work.
(b) Investment platforms often lack the deal flow and local networks/relationships to make good deals. They can raise a lot of money, but deploying the capital for high impact and returns is another thing. We also see these folks as partners because we intend to “sell” them our high-quality digital revenue streams.
(c) Traditional financial institutions like banks will be very slow to change their risk management models to be able to do data-based financing (but they could be our note holders).
There are a number of companies doing similar things to our model but mostly focused on developed markets. Square offers small business owners instant loans based on the data from their point of sale systems and Pipe offers software-as-a-system companies financing backed by the online subscriptions they’ve signed up. The latter one is almost exactly what we do, but we take the revenue streams of physical assets.
How do you plan to target retail investors and gain traction?
One of the reasons we are doing a crowdfunding campaign now is to spread the word about Untapped and our financial offerings. We hope to have a few hundred customers already lined up by April when we launch our investment platform to (accredited) retail investors, and thousands by the end of 2022 when we launch the platform to (non-accredited) retail investors.
We are gearing up to do a lot of online traffic generation to acquire investors. We have found that it costs us about $4 to acquire a customer. We make about $5 every year for every $100 of investment into our notes (capital that goes to purchase Smart Assets), so we know we can make money with just paid online ads. We are targeting an average note purchase of $1,000 from each investor to be held for an average of 1.5 years. If we achieve that, the lifetime value of each customer would be $75 versus a cost of $4.
I should note that we also have large investors who hold notes, and the average size there is $250,000, so we know it makes sense for investors. We intend to spend the next decade letting everyone else know.
How do you intend to use the money you raise this round to scale the business?
We’ve raised more than $6 million from investors to finance smart assets. We did our first equity fundraise in October 2021 and raised $1 million in a few weeks to pay the costs of building an investment platform that automates the investment process and that will allow accredited investors to invest as little as $500 into Smart Asset Financing and see returns in as little as six months.
We then extended the fundraising another $1 million to crowdfunding so that non-accredited retail investors could also become shareholders. The $1 million to be raised from this crowdfunding round will cover the legal compliance costs and further technical development to allow non-accredited investors to invest in Smart Asset Financing by the end of 2022.
What do you want potential investors to know about you and/or your company?
We aren’t newbies when it comes to investing and operating in emerging markets. We’ve been investing in emerging markets for the past 20 years and have more than 50 investments in over a dozen countries just in Africa alone.
We’ve put together a team that believes in the mission and the practicality of what we do because we see the impact every day. We’re thrilled to see this model work so well, and we’re dedicating the next 30 years to getting everyone else excited about it because we know what a big difference it could make. We aren’t here to just make a buck. We are here to create something that has lasting value, something that will change how financing is done and reshape profitable investing in emerging markets.
As you think about the business 5-10 years down the road, what do you see exit opportunities looking like? Have you set any future goals for the company?
First of all, investors who provide us capital via our notes are repaid in six or 18 months with a return, so that’s simple. We can do this because we line up our finances to the money we take from investors through these notes.
For equity investors, there are four possibilities for financial “exits”:
- We are a cash-flow business, so we expect to be paying annual dividends to shareholders within three years.
- We plan on securitizing portions of our portfolio once it is large enough (in two years or so). That means we will take a sector, such as e-mobility, and securitize the future cash flow and “sell” it to larger financial institutions and investors who want the impact and the cash flow. A climate impact fund could refinance $10 million of electric vehicle loans to get the impact and the returns. There will be a spread in this securitization — fairly large lump sums — which will be disbursed to shareholders as dividends when the board decides to do so. This is what US banks do with the mortgages they lend out and how they make money.
- An international fintech company that wants to either enter frontier markets and/or target US impact investors investing small amounts of money but at large scale could buy us for the network of operating partners we’ve developed and the expertise in this growing area, or buys us for the digital impact investing platform we’ve built and proven to scale.
- We make an initial public offering (IPO) in seven to 10 years.
The four outcomes and “exits” for investors are not mutually exclusive. The ideal outcome is that we start paying dividends by 2024, and every year or so, there is a lump sum dividend when we conclude a large securitization, and then we start shopping the company to potential acquirers in five to seven years. If we are big enough or sexy enough, we IPO when the timing is right in the market. Regardless, our goal is to deliver a financial upside to shareholders and company staff holding options in 10 years or less. Personally, my goal is to make this a billion-dollar company that reaches more than a billion people.
We look forward to seeing where Jim and his team take the company. Untapped Global is currently raising on Wefunder.
About: Yasmin Sharbaf
Yasmin is passionate about the intersection of business, art, and science. Prior to KingsCrowd, Yasmin worked on a cryptocurrency investing research project for Wellesley College Investment Office where she assessed the risks and rewards for university endowment investment into cryptocurrency. She has also previously worked in a neuroscience lab studying language and memory of songbirds. Yasmin’s dream is to make investing and financial education accessible to everyone. In her free time, Yasmin enjoys going on adventures, learning new languages, and exploring different cultures. Yasmin studied Neuroscience and Studio Art at Wellesley College.