Hong Kong’s Qupital raises $2M led by Alibaba to finance invoice loans for SMES
Qupital, a one-year-old Hong Kong-based startup that addresses cash flow issues for SMEs, has closed a $2 million seed funding round.
The is certainly a notable size for an early stage investment in Hong Kong’s nascent but growing startup scene. The financing was led by Hong Kong-London firm MindWorks Ventures and the $130 million Alibaba Entrepreneurs Fund which launched in 2015. Other investors that took part include DRL Capital and Aria Group.
Founded by mid-20-year-olds Andy Chan (26) and Winston Wong (25) who met playing basketball, the startup wants to free small companies on tight budgets from the restraints of unpaid invoices. That’s to say that a large chunk of an SME’s working cash flow is locked up in invoices that may take up to 90 days to actually pay out. Qupital tackles that issue by companies to take a loan to cover 80-95 percent of the value of the invoice, its platform matches this need with investors/funders who cover the cash with the promise of a return.
With an estimated 300,000 SMEs located in Hong Kong, there’s an attractive initial market to be tackled. Chan told TechCrunch in an interview that he believes that as many as 25 percent of Hong Kong’s small businesses struggle to maintain adequate working capital levels. They are the target.
To date, Qupital has processed 80 trades — with a total value of over $2 million — since its platform went online in August 2016. It makes money by charging companies who take loans 0.25-0.75 percent of the total invoice value, while it also makes 20% of net gains made by investors. The latter, Chan said, can expect to receive returns of around one percent per month, 12 percent annualized. The aim is for the business to reach break-even inside the next 18 months by scaling its customer base.
Beyond just money, strategic alignments in the deal will help.
The link with Alibaba will help Qupital reach traders and SMEs — which represent its core focus — while Chan said that MindWorks can open doors to other investors and family funds with an interest in investing in a new kind of asset class with returns.
There’s no plan to expand the focus to new markets right now, but Chan said that potentially — after a year and a Series A round — Qupital may be in a position to move into other places. While he said there’s no precise plan on new locations yet, he hinted that countries with strong export sectors — such as Vietnam, Taiwan or Thailand — would be among the obvious choices.
Beyond geographical forays, Qupital is looking into new products. Chan said the firm is considering support for purchase order financing — which occurs at the pre-manufacturing stage and blends higher risk with higher potential returns — while it may rollout features that enable investors with capital but limited time to pay in money on an automated basis. Right now, investors pick deals themselves which could put a limit on potential money into the platform.
For now though, Chan said he is happy with the progress.
“A friend of mine worked at [now defunct U.S. startup] Receivables Exchange and there are similar businesses in Europe,” he said in an interview. “But I saw that in Hong Kong there was definitely an opportunity because there are a lot of trading firms and SMEs whose banks options aren’t enough to cover their capital needs.”
He’s also bullish on Hong Kong as a destination for startups, thanks to examples like Lalamove and Tink Labs which have raised significant sums of money for businesses that extend beyond the country and into China and other parts of Asia.
“Theres a lot of potential angel investors here and firms that could move into startup investments but they’ve been sticking to more traditional investments, like real estate, so far,” Cham said. “A lot of investors are paying attention to the scene.”