Beyond the frontier: Emerging Crowd founders take crowdfunding to emerging markets
Next week, a new crowdfunding platform is set to launch: Emerging Crowd. In the industry, it’s a first – because it will give retail investors in the UK the opportunity to directly buy shares and bonds in emerging market SMEs. At the same time, it will be the first time that emerging market entrepreneurs will have direct access to “the crowd” – a potentially large group of Western retail investors.
Founders Lucien Moolenaar and Will Tindall have decades of financial services experience between them. Moolenaar is a Harvard graduate and qualified lawyer who has worked for emerging markets investment bank Renaissance Capital and as a director at Merrill Lynch. Tindall, who’s worked for Arbuthnot Banking Group and has founded a financial communication firm, has also headed up business development for frontier market investment group Asia Pacific Investment Partners.
I talk to the two high-flyers about Emerging Crowd, and what it means for business and investors.
Founders Lucien Moolenaar (top) and Will Tindall are confident that Neo will be the first of many firms to use Emerging Crowd
Why emerging markets?
During our time working in frontier and emerging markets, we have seen first-hand some of the great investment opportunities available in these fast growing economies. Until now, those opportunities have only been accessible to high net worth investors and industry insiders, and mainly through complicated fund structures and the occasional stock exchange listing. So we decided to bring together private equity, capital markets and crowdfunding technology to unlock those opportunities for a wider range of UK investors.
We’ve created a unique cross-border platform, where ordinary investors can invest directly in unlisted growth-stage companies without investment fees or hidden charges.
This is a tough sell. How do you plan to convince would-be investors?
Frontier and emerging market economies in Asia and Africa dominate the world’s growth projections for 2015 and beyond. There are obviously higher risks associated with investing in these markets, but there is also the potential for very significant returns.
Our platform is highly vetted, and we invest heavily in screening and due diligence. We have only select countries that have demonstrated economic and political stability and a reliable investor protection framework. Our investment team looks for well-managed companies in strategic consumer sectors that are positioned for growth. We structure all the investments under English law and offer investors direct access to the company’s management before they invest.
We’re passionate about investor protection – and raising the bar in terms of due diligence, transparency and disclosure. We run background checks on every company and the people behind those companies. Our analysts check the financial disclosures, and we work with lawyers here and in the local markets to make sure everything fits together. Every investment opportunity – equity and debt deals alike – features a comprehensive Invitation Document, where investors can find detailed information before they decide to invest.
Post-investment, we also require that every company provides quarterly and annual financial updates, so that investors can actually see their money being put to work.
Neo's founders are are very experienced entrepreneurs
One of your first launch companies will be Nigerian coffee shop chain Neo. How did you find it?
We first came across Neo in Nigeria, where one of our co-founders was invited to speak at an investment conference sponsored by the Securities and Exchange Commission (SEC). Neo is already the largest quality coffee chain in Nigeria, and we were impressed with their operational track record and their strategy for future growth. The founders are very experienced entrepreneurs with MBAs from Harvard and Wharton between them. We’re delighted that they’ve chosen to raise money for their expansion through Emerging Crowd.
What has the reaction been like on the business side of the platform?
It’s been hugely gratifying that so many amazing businesses from over 15 countries so far have already contacted us about raising money through Emerging Crowd. Our selection criteria mean that only a fraction of those will make it through, but we’re always looking for well-run businesses with impressive track records.
And would-be investors?
It’s early days, but the investor interest to date has been tremendous. We’re looking forward to our public launch, when ordinary investors can see how straightforward and transparent this type of investing can be.
Neo is already the largest quality coffee chain in Nigeria
Why are you offering debt and equity?
We believe investors should be in control, so we wanted to allow them to choose either debt or equity investments to suit their different risk appetites and investment styles. Similarly, some companies prefer to fundraise by taking on new shareholders, while others can afford to service interest payments, and therefore prefer to issue mini-bonds.
What does crowdfunding offer that microfinance doesn’t?
Our deals are larger than those offered on most microfinance platforms. Companies on Emerging Crowd are typically looking to raise at least £500,000. Structuring the debt as a mini-bond rather than a peer-to-peer loan means that investors benefit from better disclosure and solid legal agreements.
What has it been like talking to UK regulators?
The Financial Conduct Authority (FCA) has created a superb regulatory framework that’s already making the UK the world’s leader in fintech. We based our business in London to be a part of that revolution and to create a safe and easy-to-use investment platform for investors seeking the growth and returns that make frontier and emerging markets so attractive.
Interestingly, the US presents a stark contrast: investment-based crowdfunding for equity and debt fundraising has stalled as far as retail participation is concerned – until the SEC issues final rules under Title III of the Jobs Act. So in effect, the rules in the US don’t allow retail crowdfunding; only high net worth investors can be targeted. When that changes, Emerging Crowd would love to get into the US.
Which market has excited you the most and why?
In general, we favour markets that are characterised by stability, higher growth rates and positive demographics. At the moment, we see sub-Saharan Africa as an exceptional investment opportunity – particularly the larger industrialised economies such as Nigeria and South Africa, where emerging middle-class consumers are driving continued economic growth and investment.
City A.M. has partnered with Crowdnetic for the launch of its suite of UK crowd finance data. It features real-time information on private, UK-based companies publicly raising capital online through securities-based crowdfunding portals.