Charles Li’s Micro Connect Lays Off or Redeploys a Quarter of Its Staff in Radical Restructuring

Micro Connect, a financing platform for small businesses co-founded by Charles Li, the former chief of the Hong Kong Stock Exchange, is planning to lay off or reassign about a quarter of its workforce. This adjustment comes as a result of over-hiring and investment mismanagement [para. 1]. In an internal letter, co-founders Li and Zhang Gaobo explained that more than 100 employees will be affected due to the company's inability to control its investment pace and excessive hiring [para. 2].

A spokesperson confirmed these changes to Caixin and mentioned that the restructuring would be finalized by the end of May [para. 3]. The company, which has over 400 employees, will thus see about 100 of them either laid off or moved to different roles [para. 4]. Employees who are laid off will receive compensation equating to one month's salary for every year of service, plus an additional three months' salary, following an "N+3" formula [para. 5].

Micro Connect is refocusing its efforts on platform development and maintaining sufficient strategic capital. It cannot continue its high-speed investment without additional market injections [para. 6]. The platform, known as "drip irrigation connect" in Chinese, was established in August 2021 by Li, who envisioned channeling international capital to China's small and micro businesses that struggle with accessing investment and financing [para. 7]. The company typically enters into three-year contracts with chain retailers, providing loans of about 500,000 yuan ($69,000) per store. In return, it receives a portion of daily revenue until the initial loan is repaid and lists these contracts on a financial assets exchange in Macao [para. 8].

Micro Connect has raised more than $600 million and received over $200 million in repayments. These funds are reinvested into new businesses and the Macao exchange's establishment and operation [para. 9]. By November 2023, the platform had financed more than 2.4 billion yuan ($330 million) to 11,190 stores across China, mostly using its own funds [para. 10].

In another bid to stabilize and increase investments, Micro Connect launched a "leading sheep" program. About 20 key frontline employees are asked to contribute a total of 1 million yuan. The company will add another 9 million yuan to form a special purpose vehicle that aims to encourage further investment [para. 11]. This program is part of the company's phase 2 strategic plan, intended to motivate frontline employees to attract outside investors using the company's revenue-sharing model [para. 12]. Phase 2 aims to transition away from revenue-based financing to focus on the Macao exchange. The founders emphasized that this strategic shift requires meticulous management of operating costs and prudent use of the exchange's long-term strategic capital [para. 13].

In summary, Micro Connect is undergoing a significant restructuring due to over-hiring and mismanaged investments. Approximately 100 employees will be laid off or reassigned, with affected employees receiving a compensation package. The company aims to concentrate on its platform development and strategic capital while stabilizing its investment model through employee-driven investment initiatives. The transition is part of a larger plan to shift focus towards the Macao exchange and away from revenue-based financing [para. 1][para. 3][para. 4][para. 5][para. 6][para. 7][para. 8][para. 9][para. 10][para. 11][para. 12][para. 13].