Our New Investment Partner — Who are Untapped? What do they do?
We sat down with Untapped Global CEO, Jim Chu, to discuss our latest investment partner’s exciting business model.
We recently announced our latest investment partnership with Untapped Global, a capital-investment platform delivering Smart Asset Financing to tech-enabled companies in Africa and Latin America.
To help you better understand Untapped’s business model, we sat down with Untapped CEO, Jim Chu…
Background
With 20 years of investment experience behind him, Jim always understood the power of enterprise to create positive change in the developing world. The biggest problem for enterprise? The exisiting financial system in emerging markets makes it incredibly tough to grow a business effectively.
Indeed, raising the kind of capital needed to scale can be nigh on impossible. After launching a successful Haiti-based water company with the World Bank back in 2010, Jim discovered that:
“…finding the right kind of capital to scale was very challenging. I noticed that there was an untapped opportunity to finance capital-intensive businesses in emerging markets because of how broken the financial system was there. As I like to joke, you can borrow $500 to buy a cow or $20 million to set up a power plant, but anything in between, you’re out of luck.”
These systemic financial problems have led to the massive $5.2T dollar SME funding gap opening up in emerging markets. Entrepreneurs and small businesses simply can’t get their hands on the capital they need to grow. The root cause? Information asymmetries. Traditional banks in emerging markets simply can’t assess the risk of small-medium enterprises effectively, essentially cutting off millions of firms from much needed growth-capital.
So, Jim set up Untapped to help tackle the problem.
The Business Model
Untapped specializes in providing entrepreneurs in emerging markets the capital they need to scale. But, it doesn’t do that through the traditional approach of stumping up loans and then charging interest. They’re taking an altogether more ingenious approach. Something they call ‘Smart Asset Financing’, a spin on the more traditional asset-financing models.
The long and short of it is that by financing ‘smart’ assets for small and medium enterprises (known as operating partners) and integrating with their data tracking systems, Untapped is able to closely monitor, manage and monetize their deployed capital in real-time to reduce risk and generate sizable returns…
“Asset financing has been around [for a while], so have smart assets, [now] you combine that with digital payments, and what you’ve created is a way to finance a completely untapped market that’s growing like crazy, which is this smart digital economy that is being run by small businesses, ordinary people generating cash flow, solving basic needs, like clean water, transport, irrigation, payments, etc.”
This technology base is at the heart of everything Untapped does. It’s also what makes them so different from your typical financial service provider or bank. Small businesses get delivered the assets they need to function directly — fridges, e-scooters, filtration systems and the like — while the IoT functionality gives Untapped unparalleled access to real-time data showing how those assets are being used, as well as the revenue that use is generating. This real-time data affords Untapped unprecedented access into a businesses’ performance, reducing counterparty risk and allowing it to deploy capital exactly when it’s needed.
“…we really minimize that risk by using data to drive our decision making, and we do it in a way that provides just-in-time capital for our partners”
Asset-financing also has one other crucial advantage. Even in the rare case where things do go wrong, the risks of a default really aren’t such a big problem for Untapped. If it comes down to it, these are physical assets own by Untapped themselves, meaning at any point they can simply:
“…recycle the asset and use it elsewhere.”
Revenue-Sharing Model
Notably, Untapped also uses a revenue sharing model to handle repayment, meaning the success of Untapped and the companies they help finance is directly intertwined. Instead of collecting a fixed amount of interest on their deployed assets, Untapped takes a % share of the operating partner’s revenue. For example, for every ride on an Untapped e-bike, Untapped might charge 30% of the revenue, with the other 70% going to the operating partners and drivers. That means the more their partners make, the more Untapped makes too.
“We’re putting ourselves in the same boat as the companies that we finance. And for many financiers… that’s a scary risk. We don’t have this guaranteed projection of taking away somebody’s house.”
This not only aligns the incentives between Untapped and its business partners, it also alleviates significant risks for the operating partners who no longer have to worry about meeting fixed interest payments every month, or saddling their business with debt which can’t be repaid.
As we explained, if the relationship doesn’t work out, Untapped walk away with their assets, and the operating partner loses nothing either.
Vetting Partners
So, how do Untapped identify the best partnership opportunities? Jim believes it’s vital to be a part of the ecosystem Untapped wants to feed into. That means:
“People on the ground, a good understanding of the markets that we’re investing in, and just the fact that the supply and demand is so off-kilter, there’s just so much demand that people are tripping over themselves to get this kind of financing.”
When Untapped does identify companies that look like they’d be a good potential fit, the process of due diligence is extensive and granular. And, once again, it’s the data that provides the trump card.
“We get full data integration into their systems, so we see the data coming in in real time, along with the payments… Then we will provide a larger check to assess how quickly or how well they can deploy capital at some level of scale. With those first two runs, we’ve assessed three key pieces: one — how good is their data, and how good are they technically? Two — is there enough margin in it to give a good wage to the operators and to deliver our returns? And three — can they deploy this capital at some level of scale? If the answer to all three is yes, then we’ll do a larger check. We may even sign a big deal with them, let’s say a $5 million deal.”
The Companies Involved
Untapped is already funding several exciting ventures that prove there’s a very healthy appetite out there for this kind of financing. One of the best-suited industries they’re actively investing in is electric mobility. As Jim explains:
“The total cost of ownership of electric vehicles is much lower than your typical petrol, at about 50%, somewhat estimated. It’s lower, because you have lower maintenance costs and lower energy costs, but you as a Kenyan motorcycle taxi driver may not realize it because it costs you more to buy it up front. We’re able to use Smart Asset Financing to essentially transform the per kilometer costs of that vehicle to be less than what it would be for petrol, and allow you to pay just that. So you can imagine if I am a motorcycle taxi driver, instead of paying $1 a day for it, I can pay just 80 cents a day. Everyone wins, including the environment.”
There are plenty of other innovative ideas that fit the mold, too.
“In Nigeria, we finance solar powered pay-as-you-go refrigerators… instead of buying the refrigerator and paying the electrical company, [because] in Nigeria electricity use is intermittent anyway, you pay per hour… and we get repaid directly from the machines, because it’s all pay-as-you-go.”
How does Crypto Help?
When we ask Jim what the biggest challenge Untapped is facing, it’s neither raising or deploying capital, but rather:
“Growing both sides at the same time. Having just enough money to deploy to meet our demand, and vice versa.”
And it’s this problem where both crypto and Gluwa come into the equation. Crypto liquidity is much more mobile, international and ultimately accessible than in the traditional world of finance. With Gluwa Invest, anyone can come in and provide capital to Untapped in a matter of days. That kind of fundraising simply isn’t possible with TradFi.
These innovative solutions are opening up new investment opportunities to everyday investors like you and me. Indeed, as Jim agrees, the real purpose and future of OpenFi and DeFi is:
“To change who invests, how they invest, and where the money goes. And I think that’s what we’re doing… connecting decentralized finance, or open finance, with real world assets that are creating real value.”
In Summary
By offering an exciting new smart asset financing approach to financing entrepreneurs in emerging markets, grounded in technology and IoT functionality, Untapped offers investors the chance to get involved in emerging markets at relatively low risk and with sizable returns, up to 15% APY with Gluwa — all while helping emerging markets grow to their full potential.
It’s an Untapped opportunity just waiting at your fingers. So, why not download the Gluwa app and get involved with Gluwa Invest today?
