In the developed world, almost anyone can obtain financing for, for example, car leasing. But in an emerging economy like South Africa, the only people who own cars or can even get a lease are those who already have something to secure, or a paycheck to work. As a result, small businesses, particularly in Africa, have a financing gap of $5.2 trillion, according to the World Bank.
Untapped Global wanted to rethink this by allowing small businesses to use their ongoing income as collateral and enable this by being able to track their assets. So, for example, if an African entrepreneur wanted to buy a water treatment system for a new business, he would normally not be able to afford it. Instead, they could use the Untapped platform as collateral to get a machine, and Untapped would take a cut of the revenue from the water they sell. So now they can start a business and start earning income without going through the traditional process of renting a machine.
Untapped has now launched the public beta of its platform, which uses real-time data to track the assets and earnings of entrepreneurs who use its platform. The idea is to provide transparency to international investors looking to tap into Africa and other emerging markets. Funded by a US$10.3 million pre-seed round of debt and equity that closed in March, this platform uses a model called “Smart Asset Financing”. This allows it to finance income-generating assets for entrepreneurs and SMEs in emerging markets. It does this by using IoT from assets such as a fleet’s motorcycle network or, say, a Wi-Fi-connected “smart” irrigation system.
The model thus assesses the risk of an investment to secure returns for investors.
It now finances assets for more than 5,000 entrepreneurs who work in sectors such as drinking water, solar, electric mobility and inclusive fintech. The company claims to have an annual revenue rate of $2.5 million.
Jim Chu, CEO and Founder of Untapped Global, says Untapped is taking advantage of the wave of digitalization happening in Africa and other emerging markets, which now makes this model possible.
“We created Untapped to bring capital to entrepreneurs in markets that are often excluded from funding opportunities, while ensuring transparency for investors…Our data has shown that for every dollar invested, more than $3 of value are created in local economies,” he said. in a report.
Excitingly (for the planet), most of the companies in Untapped global’s portfolio are developing climate action solutions, including solar irrigation farms, electric mobility companies and drinking water systems.
Chu says it only takes $300 to start investing in these entrepreneurs and there are no monthly fees, as the platform displays real-time data on investment impact and activity.
Chu says he started investing in emerging markets around 12 years ago, investing in more than 80 companies across Africa, mostly as an equity investor: “But I kept come across deals that were like, ‘Wow, this is a great business, great cash flow, but I would never invest in this business because there were no exits, and other reasons. Investing in stocks would also place a burden on entrepreneurs.
So he started doing revenue-based financing, taking a percentage of the revenue going forward. But then he started meeting companies that were basically tech companies that realized their customers needed some kind of financing built into their product. Most of these businesses were hardware businesses, using motorcycles, cars, or the like. But these were quickly becoming smart cars, smart motorcycles, smart Wi-Fi systems, smart irrigation systems, etc., and using IoT.
As a result, Chu opted for revenue-based financing: “We will take all the data from your assets and use it as a way to manage the running of your business. In fact, forget all the usual way of doing due diligence and risk management that the bank usually wants, like balance sheets etc. Instead, we’d look at, well, how much is a motorcycle going to earn over its lifetime? And how much will he earn during the year? Can we pay off this bike in a year? And so we created this model.
The platform is now accessible to qualified investors and will be available for retail investors at the end of 2022.
Here is an explanatory video: