Eventually, Micro Connect released an all-hands letter.
At the end of April, Micro Connect proposed a "Leader" plan to encourage employees to start their own businesses, and the company allocated funds to them. Soon, the news that "Micro Connect asked employees to give 1 million to start a business for the company" spread, and Micro Connect once again stood on the cusp.
Then a storm was staged, and it was simplified by public opinion as: "Micro Connect requires employees to bring 1 million to work".
The investment community learned that on the evening of May 13, Micro Connect issued an all-staff letter to employees in response to external disputes. For the "Leader Program", Micro Connect said that it is only an incentive program for the backbone of the business. In view of the operation in the early stage, now "the money of the organization of the market, the power of the market, began to really overcome the global historical problem of investing in small and micro stores." ”
In response to rumors of external personnel adjustments, Micro Connect also explained: "Correspondingly, the company will have to cancel or adjust some positions. ”
Employees bring 1 million to work?
Micro Connect responded
Let's take a look at the focus of this controversy - employees bring 1 million yuan to start a business with the company, which is similar to the mechanism of "compulsory co-investment by employees".
At the end of April, Micro Connect launched a new internal policy to allow employees to start their own businesses, with employees contributing 1 million yuan and the company allocating 9 million yuan to jointly establish an SPV, which in turn hired the employee and formed a team to help the SPV continue to mine high-quality assets and list on the ASX Micro Connect to create investment opportunities and returns.
According to the internal draft, the program is voluntarily signed up by employees, and the SPV formed will be required to provide Micro Connect with a share of the "net income" - 70% of the SPV before Micro Connect pays back the cost, and after Micro Connect pays back, the proportion is reduced to 35%. There is also an incentive mechanism, and after deducting the share and operating costs, the remaining funds can be freely distributed.
In this regard, the draft mentions the progress of the return on investment:
5% by the end of 2024, 40% by the end of 2025, and 100% by the end of June 2027 after 4 years. After the completion of the return of the capital, the company will return 1 million business operating funds to the employees; However, if the SPV is unfortunately liquidated, the employees will have to bear the losses together.
Let every employee start a business within the company, and real money and silver share the risk, and the news caused a lot of controversy.
As opponents put it, "Raising money from employees is like the 'last madness,' the usual routine of real estate companies many years ago." Others also welcomed: "Only by having the confidence to find high-quality assets and the willingness to take possible risks can we have the opportunity to obtain excess returns." ”
In last night's internal email, Micro Connect officially proposed their "Leader Plan" and explained the logic -
In order to help business students quickly grow into leading investors, the company decided to launch the "Leader" plan, select a group of outstanding backbones, divide them into several teams, funded by the company, and follow the team to form a group of professional investment institutions with different focuses, and explore investment strategies in different fields.
In Micro Connect's view, there are many professional investors in the market who are familiar with big consumption, but they are unfamiliar with how to invest with revenue sharing, and they need someone to guide and persuade them to provide solution design, income control, capital allocation, valuation, trading, etc. The people who can lead them are the "leaders", these people are the front-line salesmen of the investment and development team that Drip Irrigation has cultivated in the past few years.
"In the first stage, there is only one leading fund, and in the second stage, the market needs more leaders."
It is reported that the leader plan is already being implemented. There was a news on social media that "employees who do not sign up will be transferred or resigned". In this regard, Micro Connect also responded from the side:
"As a start-up company, we have to realize the transformation of old and new kinetic energy, and the pain and challenges to the management of the company are inevitable. The company's organizational structure also needs to be adjusted, and accordingly, some positions have to be cancelled or adjusted. ”
"Is Micro Connect running out of money?"
There are signs of such changes.
At the beginning of this year, Micro Connect announced that it had fully focused on the operation of the exchange, acting more as "referees" and "waiters" and less as "athletes", so that more market forces can jointly overcome the difficulties of small and micro financing.
As mentioned in the all-staff letter, Micro Connect has fully entered the "second stage of development", which is internally called "second stage rocket" and set off:
In the "first-stage rocket" stage, Drip Irrigation uses its own money and strength to test the feasibility of the Micro Connect model - in the face of the historical problem of investing in small and micro stores, take advantage of the success of China's digital revolution to break a new path and establish a model for the world.
In the "second stage of rocket" stage, Micro Connect has completed the foundation of Micro Connect's ASX market construction with the previous achievements, and began to organize market money and market forces, and began to truly overcome the global historical problem of investing in small and micro stores.
In the first stage of exploration, we not only created a series of revenue sharing products, but also created an ARM system and an exchange system to ensure product operation, as well as supporting full-process systems, algorithm models, risk control systems, etc. It has invested in more than 13,000 stores, with a cumulative amount of more than 4 billion yuan.
The so-called "two-stage rocket" consists of three cores: the navigation system, the power system, and the escort system. The navigation system is the aforementioned "Leader Project"; The internal name of the power system is "Central Trading System ETF"; The escort system covers four new functions: information disclosure, valuation, risk control and post-investment asset management.
Micro Connect mentioned that the "second stage rocket" will bring a new stage to the ASX, the specific design has been basically formed, and the next step needs to be fully negotiated with relevant parties, including regulators, with the goal of gradually rolling it out to the market in the second half of this year.
But as the outside world speculated: through the Leader Program, what happened to Micro Connect to "fundraise" employees with such fanfare?
In response to this internal email: People will ask, "Is Micro Connect running out of money?" Is the upfront investment not good? The answer is clear: no! What we are exploring is a new field for the whole world, and without our bravery and ignorance, no one would have done this big money investment in a small shop. ”
Although Micro Connect emphasized in the email: "The company will insist on minimizing the impact of the transformation on students as much as possible." But controversy remains.
Time will tell
The emergence of Micro Connect has attracted a lot of attention because of two well-known founders in the financial circle - Li Xiaojia, former CEO of the Hong Kong Stock Exchange and former chairman of JPMorgan Chase China, and Zhang Gaobo, founding partner of OP Financial Group and pioneered the listing model of China's "red chips".
One well-known version is that the idea of creating Micro Connect came about when Li was at the helm of the Hong Kong Stock Exchange. At that time, Li Xiaojia realized that the financing needs of China's small and micro enterprises did not match traditional financial instruments, and in this regard, he found a "non-equity and non-debt" solution - that is, the controversial "revenue sharing" model in the future.
To put it simply, it's an income-based financing model. The core product is Daily Revenue Contracts (DRC). DRC is non-equity and non-debt, and the investor does not require the entrepreneur to sell equity, nor does the enterprise need to bear a fixed repayment obligation, but shares a certain proportion of the company's future income as a return on investment.
(Source: Micro Connect White Paper)
In 2021, Micro Connect announced the completion of a $50 million Series A funding round.
The name "Micro Connect" is inspired by Israel's drip irrigation technology, which has transformed Israel from a water-scarce country to an agricultural powerhouse. The new corporatization is used to effectively drip water into small and micro enterprises as economic "capillaries".
With the blessing of the big guys, Micro Connect has developed extremely rapidly. In March 2022, Micro Connect announced that it had secured a $70 million Series B funding round. Since then, Micro Connect has quickly realized the "100 Stores Plan". In December 2022, Micro Connect was approved by the Macau Special Administrative Region for the establishment of the ASX and will officially operate in August 2023.
At the same time, Micro Connect announced the completion of a US$458 million Series C financing, according to Micro Connect's official disclosure, this round of financing shareholders have a diverse and wide range of new and original shareholders from Europe, the United States, the Middle East, Southeast Asia and Greater China, including large long-term investment institutions, private equity and venture capital funds, university endowments, Internet platforms, retail consumer groups, etc.
Since then, Micro Connect has grown faster and more controversial. Among them, as a new financial model, "non-equity and non-debt" breaks through the previous cognitive logic, and there are many difficult places to explain in the financing model and legal supervision, such as how Micro Connect defines itself; What to rely on to make a profit and cover a loss; how to deal with risks; A series of questions such as whether it is regulatory arbitrage have followed.
The most sensational question came from Song Xiangqian, the founder of Jiahua Capital, who posted on various platforms questioning Micro Connect and its operating model:
"It's a pity that I don't see any public welfare attributes of Micro Connect, and I don't see any innovation in it, it's still a loan shark in essence, and it's an upgraded version of P2P."
This incident once set off a debate in the financial circle. Later, Micro Connect Co-Founder and Chairman Charles Li and CEO Zhang Gaobo held an online press conference to publicly respond to relevant questions, explaining that Micro Connect's investors are institutional investors, not individual investors, and there is no borrowing behavior, so it is not P2P.
But the controversy never stopped. At a crossroads in China's primary and secondary markets, it is still unclear whether Micro Connect will surpass Wall Street and pioneer in history, or whether it will be an unknown species released from Pandora's box.
The wheels of history roll forward, and time will eventually give the answer.
The full text of the response is attached: