If you follow the startup scene at all, especially here in Hong Kong, you will definitely know that FinTech is all the buzz these days. It has been for the last several years. FinTech is, essentially, the application of technology in the financial services industry, and it’s particularly popular here in Hong Kong, due to the city’s prominence as a global financial center.

Because of this, and its proximity to China, Hong Kong sits well-positioned to becoming one of the top three global FinTech hubs. Today’s guest is Andy Chan, and he is the co-founder of a relatively new FinTech company called Qupital. The company is fresh off a seed round of funding, which was led by both local Hong Kong VC investor, MindWorks Ventures, and, of course, powerhouse investor Alibaba. It is, in fact, both of the firms’ very first FinTech investment in Hong Kong in their portfolio, so that should get a lot of people excited about this particular company.

What exactly does Qupital do? Qupital provides a platform for small and medium enterprises to connect with investors and receive immediate financing on their unpaid invoices in a matter of a few clicks. Essentially, if you are running a small to medium size enterprise, you get your cash up front for your unpaid invoices. On the funding side, as an investor, you can invest in these invoices and you get access to a diversified asset class. For those of you who are interested in finance and FinTech startups, this is an episode for you. Let’s get right on to the show, and let’s hear what Andy has to say about his latest funding round.

Jay: Hi Andy. Thank you for joining us on the Jay Kim Show. Welcome to the show.

Andy: Thank you very much, Jay, it’s a pleasure. I look forward to speaking to you.

Jay: Thanks. For our listeners tuning in from Asia, around Asia and from overseas, maybe you can give us a little bit of an introduction. Who is Andy Chan, and what do you do for a living?

Andy: Right. I’m Andy. I grew up and studied in New Zealand, and then I went to college, majored in economics and computer science at Brown University, and then my first job out of college was a software engineering role that was in Denmark at a legal tech startup where we made a platform which is, like, an online arbitration … Kind of, helping people resolve disputes online rather than through the public courts, which take a long time.

Right now, I’m a co-founder and CEO of Qupital, where we operate a marketplace for SMEs, who can discount their accounts receivable by connecting them to a pool of professional investors.

Jay: Interesting. You were born and raised in New Zealand?

Andy: Yeah.

Jay: Okay. Your family is still there?

Andy: Yeah. Some of my family is still there, but they’re all over the place right now, but I’m based in Hong Kong.

Jay: Right. Do you have family ties in Hong Kong, or was Hong Kong just a location that you decided to move to?

Andy: My family was based in Hong Kong before they moved to New Zealand, so I have some roots here.

Jay: Got it. Okay, that’s nice. This being a Hong Kong-based podcast, I’m very pro Hong Kong and always enjoy speaking to Hong Kong founders or Hong Kong-based founders. It’s a pleasure to have you on. Let’s talk a little bit about your entrepreneurial journey. Let’s start with that. You said after New Zealand, you went to Brown University. What made you decide that you wanted to pursue entrepreneurship or working at a startup?

Andy: I majored in computer science, and a lot of my friends and schoolmates were into tech, and there was a lot of events at school, like hack-a-thons and entrepreneurship pitch competitions, things like that. I went through an incubator with the school, and that’s when I decided that software and tech is where I’d like to pursue my career, and a good opportunity popped up for me in Denmark, and that’s when I started working for a startup. Around the same time, I noticed that there were these platforms overseas, in the UK and the US, which was doing similar accounts receivables exchanges, like Qupital.

I looked at Hong Kong’s market and saw that there wasn’t a player here, so that’s where I met my co-founder Winston. We met through playing basketball, and then he has been in this accounts receivables factoring space before, so he brought a lot of experience from that, and then we started building out our prototype and getting customers on board, and trying to run the platform so it would generate some traction and getting some initial investment from a Hong Kong VC, MindWorks Ventures.

That got us to a stage where we were able to prove more of the concept and getting more users on board. We recently closed a round where MindWorks Ventures and Alibaba Entrepreneurs led the round, and now we’re looking forward to expanding our team and getting more users on board.

Jay: This is the big news. First of all, congratulations, Andy. That’s quite an accomplishment … This was still a seed round, is that right?

Andy: Yep, yep.

Jay: Okay, so a seed round, but the fact that it was led by both MindWorks Ventures, which I know David well, and he is one of the rising star VC investors here in Hong Kong, also a big advocate of the ecosystem here, so we have a lot to talk about all the time. Alibaba, of course, probably one of the largest players in the world, and especially, this is their very first FinTech investment, so this is quite big news. Again, it’s a big milestone, so congratulations.

Just taking a step back, I’m curious to hear about the concept itself. Essentially, you said that while you were at your other company, before you started Qupital, you had seen a similar business model. Is that right?

Andy: Yeah. One of my seniors at school was working at a US firm called the Receivables Exchange, and then I started doing research on these different receivable marketplaces around the world, and saw that there was some in the UK, Spain, and the US. That’s when I really thought that there was an unserved market in Hong Kong for SMEs.

I have friends and families that work in and start SMEs in Hong Kong, especially in the trading sector, and they have a lot of these long unpaid invoices, 30 days, 90 days, 120 days, and we saw that this product could really help these people, or help grow their businesses and improve their liquidity in the market.

Jay: That’s pretty interesting. You said you met your co-founder playing basketball.

Andy: Yeah.

Jay: He was working in that space in some capacity, is that right?

Andy: Right, right.

Jay: Okay. This is quite interesting, because, when did you guys start? You guys started a couple years ago?

Andy: We started, actually, last year, March, 2016. It’s been only one year, but a lot has happened and we’ve learned a lot about ourselves and also about the Hong Kong market, so it’s been an exciting and very eventful year for us.

Jay: Very exciting. What comes to mind … That’s in my mind immediately, is, when you think about some of the more successful Hong Kong startups that have worked … The natural thing, the first thing that you do, is you look at what works in Silicon Valley, or what works elsewhere globally, and then you try to replicate that within the Hong Kong market.

Maybe five years ago, if you jumped on that trade, there could have been a lot … There might have been a lot of opportunity, or similar businesses that could have worked within our slightly different ecosystem here in Hong Kong, but concept-wise, if you came to Hong Kong and your execution was very on point, and you brought it to market very quickly … It was probably easier back then for you to be somewhat successful in replicating something like that.

When you fast forward, you told me that you started only last year, I feel like it’s getting more and more difficult, because all the ideas to replicate businesses that work elsewhere, are taken up. The fact that you were able to find this business in, kind of, a niche segment … Slightly obscure for people outside of that arena, and even within finance, it’s not really that popular or well talked about as an asset class, but the fact that you were able to find that and then build technology around that to provide this platform, I think, is incredible. That’s good work, there.

Let’s try to break this down for our listeners. I know that, while Hong Kong is a financial hub, and there are many, many people that are in financial services that might be more familiar with receivables, financing, and how your platform might potentially work, for those listening that don’t have any clue on what receivables financing is, maybe you could give us a 101 for the audience.

Andy: All right, great. Let’s say there’s a manufacturer or a distributor of some product. Let’s call them the company, and they’re a supplier, and they’re selling food products to a supermarket. That’s our account debtor. Let’s call them XYZ company, and ABC company sells them a batch of goods, and then they will require, a lot of the times, credit terms.

Let’s say a 90 day open account credit term. That then set up, the goods are delivered, XYZ will wait 90 days before paying for the goods. Now you have a 90 day account receivable. Let’s say it’s worth a hundred bucks, then Qupital will be able to put that on our platform and advance up to 95% of the invoice value, so $95, and the funders on that platform will be able to see that, “Okay, we have a receivable due from XYZ supermarket, and there’s an advance of $95 on that,” so the funders can bid on this invoice and they will get it at a discount, so they’re actually paying, maybe, 98, $99 for the $100 invoice, and we will advance $95 to the seller.

After 90 days, XYZ company remits the $100, then the funders will get a $2 gain on their 90 day investment. That’s around 2% for 90 days, so roughly about 8% annualized. That’s how we operate. We’re just making sure that the seller has a new platform where they can put these accounts receivables and then the funders have access to that and they buy it at a discount, so they’re paying, let’s say, $98 for a hundred dollar invoice.

Jay: That’s pretty cool. Okay, from a seller, I guess, standpoint, it’s working capital requirements … Cash is always king, so there’s oftentimes where you need that cash in before the receivable hits your books. This is a perfect way for you to then post that onto your platform and find someone to fund it immediately.

Andy: Right.

Jay: It makes a lot of sense from a business standpoint. What have you found from a investor’s standpoint? How has the demand been, as an asset class … Receivables, financing, as an asset class. Who are the types of investors that you see on your platform?

Andy: Currently, we’re getting a lot of family offices or high net worth professional investors. Volume isn’t as high as we can approach some of these funds, or larger institutional players yet, so mostly it’s been a lot of these professional or sophisticated family offices and high net worth individuals who are sitting on a lot of cash, and they want to have a short term 60 day, 90 day product where they can generate these annualized fields between eight to 14%, which is what we’re getting on our platform so far after running it until now.

So far, the demand has been pretty good, but they are looking for us to onboard more SMEs.

Jay: Very interesting. This is just right in the heart of what an SME needs. A lot of these are cash-based business, or are heavily reliant, and it just fills a perfect need. From a Qupital standpoint, how do you guys make your money?

Andy: We have a platform fee that is between 25 to 75 basis points. It depends on the SMEs size, and that’s a flat rate that we charge on every invoice that they put onto the platform. We also have a 20% carry, or a commission, on the funder’s side, so that we participate, between us, whatever gain that they realize on the platform, as well.

Jay: I see, okay. If I’m a potential investor on the platform, is there a way that I can, basically, calculate that very quickly before I’m making an investment decision, so I see my net return?

Andy: Right, yeah. When you place a bid for any invoice on our platform, then you can see what your take is and what Qupital’s take is and how many days it’ll take for you to get your return back.

Jay: Interesting. As far as, say, risk management goes, what are the types of measures that you put in for … If I’m a company, how do you do quality control, as far as … It might be not a company that is … Maybe a company is almost going to go bankrupt, or maybe their business line is fraudulent. What measures do you have in place on your platform that protects the transaction or the investor?

Andy: We do full notification, so that means that we have to notify the counter party … The account debtor. In our example before, we’ll notify the supermarket that the seller has entered into a financing agreement with Qupital and that they must pay into a designated account that we control … Important for factoring facilities to control the remittance bank account, and the flow of funds, we can keep an eye out on. We also have recourse to the seller. If for any reason after 60 days after the due date, there’s any reason that the invoice can’t be paid, then the SME is still on the hook for the payment back to the funders, and the fees associated.

We have placed a charge onto the account receivables in the company registry in Hong Kong to make sure that the SME, or the seller, can’t double-finance it and go to many different banks or [inaudible 00:17:35].

Jay: Right, got it. What are the … Is it mainly Hong Kong-based SMEs that are on your platform, or is it regional, or global, even?

Andy: Right now, the most important things for our business is the legal side of things, and currently our agreements and our contracts just cover sellers in Hong Kong, but they can be exporting to the states or Europe, and have the counter parties in other countries, is fine, but for the actual seller themselves, we’re just focusing on Hong Kong right now.

When we get our next round of investments, we would be trying to expand to the rest of Southeast Asia.

Jay: Nice. That’s exciting. Let’s go through the user experience again real quickly. Obviously, Qupital is a technology platform, so I imagine that things are extremely streamlined. If you were trying to put together a trade finance deal, first of all, the notional amounts that you’re dealing with would far exceed a normal investor, unless you’re a very large family office, or maybe an institution or corporate, that you’d be able to dabble in the amounts that are necessary, but now that we have access to the smaller players, like SMEs, that opens up a whole new, almost asset class … Bracket of assets.

From a user perspective, how long does it take to onboard on the platform, get accredited, or if that’s part of the process, and participate in your first option?

Andy: Right. For the sellers, usually onboarding takes between one to two weeks, and then afterwards, if they want to put on an invoice, it only takes 24 hours for it be optioned. On the funder’s side of things, the onboarding’s a lot quicker. It’s just a couple of days.

Jay: Wow, that’s quite quick. How long does the auction process last for?

Andy: Right now, our auctions go from 10 AM to the next day at 10 AM, so 24 hours.

Jay: Okay, so it’s 24 hours auction. If I’m a SME or an investor, is there any sort of limits on how much I can post … How many I can participate in or how many invoices I can sell on the platform?

Andy: Yeah, for the SMEs, in the beginning, as a seller, you need to prove your track record. We do impose credit limits on them, but the funders can take on as many invoices as they feel comfortable with.

Jay: It sounds very interesting. Are there other competitors in Hong Kong, the Hong Kong market, doing what you’re doing, or was it only overseas that you saw this sort of platforms?

Andy: Mainly overseas. In Hong Kong, we do see different models tacking the same problem of working capital. They are linking up the buyers and sellers, [inaudible 00:20:41] market and food supplier, and then they negotiate a discount or early payment onto the platform, but they’re not bringing in outside capital, such as the family run businesses or the professional investors, and then there’s another company, and they do purchase auto financing, rather than the receivables financing, so earlier in the supply chain.

Jay: Right. It’s pretty interesting. Why do you think that you … Okay. Hong Kong being one of the [goal 00:21:10] financial centers, probably top four or five, potentially, FinTech hubs in the world, and the potential to be top three … Obviously, FinTech is so hot right now. Everywhere I turn … I don’t think I go a week without getting some sort of FinTech conference invite or what have you. Amongst this hot emergent of FinTech players and startups, what do you think made Qupital attractive to the point that the likes of MindWorks Ventures and Alibaba would make their very first Hong Kong FinTech investment in your company?

Andy: I think it’s more about our model. It’s a proven business model that’s worked overseas, so there’s not as much product risk going into investing into our company. I think they’re more concerned about our execution, and they see that there’s a large market that we’re serving. It’s been a while since there’s been innovation in Hong Kong’s SME lending space, so that’s why I think we’re more attractive, because there’s a proven model, and there’s also a large unserved market here.

Jay: That’s pretty exciting, actually, to tap and “disrupt” a space that is quite niche, I think, and hasn’t been very active or looked at frequently, in the near past. Let’s talk about your future plans, then. You’re fresh off a seed round, which is great news. Obviously, you guys are going to have some good PR and you have a little bit of momentum now that you have the seal of approval from Alibaba. What do you have planned for the capital that you raised? How are you going to put that back to use, and what are your future expansion plans?

Andy: We’re going to continue to build and improve our technology and make sure that we maintain our edge there, and other parts of the funding would be used for marketing, sales, and then we may use part of the funding to explore and get different markets, and work with lawyers to see how we can implement our model in different places, such as Taiwan or Thailand, Vietnam … There’s also a lot of exporters and manufacturer training firms that need working capital.

Jay: Right. Is China in your plans at all? Obviously, you have somewhat of the best branded strategic partner, if you decide to enter that market. Is that in your future?

Andy: Potentially, but I think that China is a very competitive space in this crowd lending or FinTech space, where there’s actually a lot of already established players there, so I think we’re going to use our Hong Kong brand and reputation of Hong Kong being a financial hub, to really try to serve the Southeast Asian market first, and make sure we do that well, before we’re trying to venture into China.

Jay: Got it. Andy, it’s been a pleasure speaking to you. Thank you for coming on the show. I just have a couple more questions as we look to wrap up here. The first of the last three questions, let’s say, is, what does Qupital look like 10 years from now? This is a question that I like to ask startup founders, because I’m curious as to what their grand vision is of the company. Some founders like to ride it until, potentially, an IPO, and will stick with it or die, or some people are just trying to exit at some point. What do you have planned?

Andy: 10 years from now, I’d like to be in 10 markets, so a new market every year. We want to probably expand into different product lines, as well, so not only receivables but we could also move in to, like I said, the riskier, high return purchase order financing, and then, yeah, really cradle a large database of SMEs and also having a lot of data on their buyers’ payment behavior, and that’s going to give us an edge on how we price the receivables [inaudible 00:25:41], so get the funders the best return ratio.

Jay: That’s a very good answer. You could have just said, “In 10 years, I want to be sitting on a beach,” but I think that is testament to your commitment to growing your business. Second to last question is, if you had one piece of advice for young startup founders or aspiring entrepreneurs maybe looking to enter the FinTech space or disrupt a part of one of the spaces within the FinTech umbrella here in Hong Kong, or maybe just trying to break into a startup, what advice would you give to them?

Andy: Just being resilient and going out and doing something new and taking a risk. You’re always going to encounter a lot of obstacles, and make sure that you have a well-rounded team. That’s a good, and a very important part of the startup journey, is that it’s very hard to go at it alone, because every person’s wired differently. They will have different strengths and weaknesses, so make sure that your team compliments each other and you want to get as well-rounded a team as possible, and you’ve got to be comfortable with not having all the information to make a decision, just make the best decision you can in a given moment, and don’t beat yourself up for it.

Jay: That’s a hard one, but it’s part of the startup gig, so that’s what, I guess … People are investing in you as a leader to do, so making the hard decisions. Last question is really, just, where can people find you, follow you and connect with you, and maybe learn a little bit more about Qupital?

Andy: I’m actually not on Twitter or Instagram and stuff like that. Especially this year, I’ve really been cutting back on social media and just been focusing on the business. They can find out more about Qupital on our website, qupital.com, and you can reach me, probably, through, also, contact@qupital.com. Those emails also get to me, as well, so, if anyone wants to send me something, I’m happy to receive it.

Jay: Great. Thank you, Andy. Thank you so much for your time. It’s been a pleasure speaking with you. Congratulations, again, on your seed round, and it’s going to hit the news, or it’s already hit the news, and so we are looking forward to seeing the growth and the success of Qupital. Best of luck.

Andy: Great, thanks. I look forward to speaking with you again next time.

Jay: All right. Take care.