Cover Story | Is Drip Irrigation a Viable Solution? (AI Translation)
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- Mr.JUDY, a new chain hair care salon, received its first batch of investment from MicroConnect in 2021 during the severe pandemic which heavily impacted offline businesses. The founder, Wang Jianlin, mentioned that they couldn't secure bank loans at the time. As of now, they have opened over 300 direct stores nationwide, with nearly 100 receiving investments from MicroConnect.
- MicroConnect was founded in August 2021 by former Hong Kong Exchange CEO Charles Li Xiaojia and has quickly become a 'unicorn' company valued at over $1 billion. It focuses on retail and consumer sectors and has signed contracts with 11,190 stores across China. By November 1, 2023, it had invested more than RMB 24 billion.
- However, MicroConnect has recently been embroiled in controversy. Prominent investor Song Xiangqian criticized the company on social media for practices resembling usury or deceptive lending schemes. Debates have arisen about whether MicroConnect represents financial innovation or is simply old wine in new bottles. Concerns center around product attributes and return rates, risk control challenges and missteps, and regulatory gaps.
- MicroConnect's underlying assets are based on Daily Revenue Contracts (DRCs) with small businesses in mainland China. These contracts stipulate that investors provide funds in exchange for a percentage of future daily revenues until the end of the contract period, typically around three years.
- Despite controversies surrounding its high annualized return rates (typically between 15%-20%, sometimes nearing 30%) and whether small businesses can sustain such rates, there is recognition that MicroConnect addresses financing difficulties faced by small enterprises in China's private sector.
- The platform's success is partly attributed to China's highly digital economy which allows real-time tracking of business data through internet payment technologies. This reduces information asymmetry for investors who receive daily revenue shares directly from enterprise incomes.
- MicroConnect also securitizes these DRC assets on its Macau Exchange (MCEX), selling them to professional overseas institutional investors. However, without public disclosure of bad debt situations among invested enterprises, there are concerns about potential risks related to asset quality and transparency.
- In summary:
- Mr.JUDY founder Wang Jianlin accepted investment from MicroConnect due to difficulty obtaining bank loans during COVID-19.
- Founded by Charles Li Xiaojia in August 2021, MicroConnect became a unicorn company focusing on retail and consumer industries with significant investments across China.
- Controversies arise regarding high return rates demanded by MicroConnect and regulatory uncertainties surrounding this new financing model based on Daily Revenue Contracts (DRCs).
文｜财新周刊 王小青 王端 发自香港，刘冉 发自北京
By Caixin Weekly's Wang Xiaoqing and Wang Duan from Hong Kong, Liu Ran from Beijing
“我们在2021年时被滴灌通注意到。当时疫情还比较严重，对线下连锁行业冲击很大，我就抱着试试看的态度，接受了滴灌通的第一批投资。”新型连锁养发馆“Mr.JUDY洗个头发”（下称“Mr.JUDY”）创始人王健霖说道。
"We first caught the attention of Drip Irrigation Capital in 2021. At that time, the pandemic was still quite severe, and it had a significant impact on offline chain industries. With an attitude of giving it a try, I accepted the first round of investment from Drip Irrigation Capital," said Wang Jianlin, founder of the innovative chain hair care salon "Mr.JUDY Wash Your Hair" (hereinafter referred to as "Mr.JUDY").
王健霖称当时拿不到银行贷款。时至今日，他在全国开设了300多家直营门店，其中近100家门店接受了滴灌通的投资。
Wang Jianlin stated that he was unable to secure bank loans at the time. To date, he has opened more than 300 directly-operated stores nationwide, nearly 100 of which have received investment from Drip Irrigation Tong.
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