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Higher Yield Investing In Emerging Markets, With Jim Chu
Africa is not only the fastest-growing continent in the world, it’s also an economic growth story featuring millions of enterprising and resourceful entrepreneurs. But how can entrepreneurs in Africa and other emerging markets access the capital they need, given current structural challenges?
Jim Chu, CEO at Untapped Global, joins WealthChannel’s Andy Hagans to discuss how individual HNWIs can enjoy high yields with CapEx investments in Africa and emerging markets.
Watch On YouTube
- The story of how Jim got involved with venture capital, then philanthropy and volunteering, and finally culminated in the founding of Untapped Global.
- Details on the demographic boom occurring in Africa and several emerging markets (and how it compares to the demographic bust occurring in the West).
- Where some investors go wrong when investing in Africa and other emerging markets (and what the solution is).
- How credit and underwriting models need to be fundamentally different in Africa and in emerging markets, as compared to in the United States or other Western economies.
- How the Untapped Global investment platform works, and how it offers attractive yields to accredited investors in the United States.
Featured On This Episode
- How Untapped Global plans to bring the revenue financing model to African startups (TechCrunch)
- Untapped Global and Asaak Partner to Finance 2,000+ Motorbikes in Uganda (Bloomberg PRNewswire)
Today’s Guest: Jim Chu, Untapped Global
- Untapped Global – Official Website
- Untapped Global on LinkedIn
- Untapped Global on Twitter
- Jim Chu on LinkedIn
About The Alternative Investment Podcast
The Alternative Investment Podcast is a leading voice in the alternatives industry, covering private equity, venture capital, and real estate. Host Andy Hagans interviews asset managers, family offices, and industry thought leaders, as they discuss the most effective strategies to grow generational wealth.
Andy: Welcome to the show. I’m Andy Hagans. And today, we have a fantastic episode for you today. So, Africa, it’s not only the fastest-growing continent in the world, it’s also an economic growth story, might be the growth story of this upcoming century. So, I’m really excited to dive in. This is something different than a lot of the stuff that we talk about on the show, a lot of the asset classes we usually discuss. Joining me today is Jim Chu, CEO at Untapped Global. Jim, welcome to the show.
Jim: Thank you for having me.
Andy: And your company is totally unique. You know, covering unique companies like yours, it’s honestly my favorite part of my job, my favorite part of this show. There’s so many exciting things going on in alternatives, and this is just something totally different. And so I was reading about Untapped Global, and I’m like, “This is amazing. My audience needs to know about this.” So, we have a lot of ground to cover, but why don’t we start with you? Before we get to your company and your platform, what is your background, and how did it lead to founding Untapped Global?
Jim: Yeah. Well, I come from a pretty, I would call, stereotypical background. Grew up on the West Coast, went to Stanford, worked in the tech sector in the ’90s, 2000s. I started angel investing in the 2000s, became an LP in a few venture funds. And I thought that was kind of it, you know. That’s life, right? You’re a tech worker, and you make some money, and you invest in startups. Work life is done, right?
Jim: Well, of course, you get into a little bit of philanthropy. And that’s what I did, starting in 2010. Right after the earthquake in Haiti, I donated and volunteered a lot. And I think that’s where this part of my story really started. I started realizing that, first of all, there was a desire to drive change in the world, and I think a lot of us do. But then I also realized that the typical ways that you think of when you think about “saving the world,” again, philanthropy, charity, etc., I wasn’t really moving the needle. In fact, it was oftentimes going the other way. So, in Haiti, a lot of the aid and charity was at best a band-aid. And in many cases, it was actually making the problems worse, by creating this…
Andy: Disempowering, in a way?
Jim: Disempowering, and created a separate incentive structure that, I like to say this, in my kind of colloquial business language, every NGO has two customers. You have the people you’re trying to serve, and the people who give you the money. And you think they have the same interest, but they don’t. And push comes to shove, the organizations that do “really well” i.e. raise the most amount of money, guess what they’re really good at? Raising money. But are they actually good at doing what they’re supposed to be doing? Maybe, maybe not. Right?
Andy: Jim, your story is already pulling me in, because I actually had a recent guest, and my quote was, “If there’s one thing I’ve learned from the Bible, or everyday life, is that human beings respond to incentives, and human nature exists.” And so, show me a business model or a philanthropic model, or show me any organization. I wanna understand how it aligns with human incentives, rather than fighting against human incentives.
Jim: Right. And human incentives, and the structure of incentives, and how it creates actions and behavior in the system, is complicated, right? It isn’t just, oh, yes. Make sure everybody believes in the right values, and everything will be good. Yeah, you can have a lot of good intentions lead to bad things. We all know that. But I kind of concluded this very quickly in my volunteer and donation work, charity work. And coming from a couple decades of business, I said, “You know what?” And, somewhat arrogantly, “We’re gonna change this. We’re gonna make the customer, the Haitian consumer, who wants” And so, we launched a business, I co-founded a business with the IFC and FMO, the Dutch Development Bank, and the investment arm of the World Bank, and we created this water infrastructure company in Haiti.
And without going into all the details, because that’s probably another two-hour episode, I learned a lot of things. One of which is that, first of all, a lot of things that we know intuitively, there’s a lot of entrepreneurship out there. And there’s a lot of investment opportunities out there. But the more important thing I learned is the way we invest, the way investors put money, or provide capital to businesses and entrepreneurs, is very broken. It serves very specific markets and situations, but it’s leaving a load of opportunity on the table. And so that’s what we really created Untapped Global to fix.
Andy: So, wait, do you mean, if I’m reading between the lines, you mean the financial system, banking system, a lot of these global systems are optimized for Western countries, for the United States, for the United Kingdom, and that they…
Jim: Yes, in a very general, high level, but for very specific situations, like, venture capital is really good at asset-lite, winner-takes-all, big IPO markets. Plus some of Europe. Makes sense. China.
Andy: So, software, and Netflix, and LinkedIn? Yeah.
Jim: Software eats the world, right? Makes sense. Makes perfect sense, right? Semiconductors in the ’70s, make perfect sense. Winner takes all. Commercial debt, really good for giving money to people who already have money. “Hey, you wanna borrow a million bucks? No problem. Show me you have $1.5 million, and then we’re gonna hire a bunch of lawyers and make sure that if you run off with my $1 million, I’m gonna go after your $1.5 million. That works really, really well.
But for everybody else, you’re kind of out of luck. Now, in the U.S. market, there’s some alternatives to how you can get access to that kind of capital. But, especially emerging markets, I come across over and over and over again, and I did as an investor in emerging markets, all these great companies, where I myself said, “I love this company, but I can’t invest in them. Where’s the exit opportunity? Oh, where’s the collateral? I can’t do this. I just can’t. I can’t do this with my children’s college fund. I can’t.”
But, I know they’re profitable businesses. So, how do I actually invest in these companies? And so, that was really the genesis of Untapped, in the sense that, and it’s making a very long story very short, because I don’t wanna bore your audience. But basically, we created this model out of a need, need as an investor, to capture some of this great opportunity in emerging markets, but also because I really wanted to help. And by that point in my life, this is about five, six years ago, I’d already fully concluded that the best way to drive change in the world is to put capital in the hands of entrepreneurs who can really solve problems because they know those problems, because they’re part of that community, because they’re part of that market. And if you do that, and you do that efficiently, well, everybody’s better off. The world is better off, investors are better off, entrepreneurs are better off.
Andy: Yeah, it’s interesting, Jim. Well, there’s so much to unpack there. One thing that getting capital in the hands of local entrepreneurs, I mean, I’m a Roman Catholic, and in our faith, that’s the principle of subsidiarity, meaning that decisions are oftentimes, they’re best made at the most local level that is practical, right? So, national security decisions, they can’t be made locally. They need to be made at the national level. But family decisions are best made at the family level, right? Not at the society level. And similarly, capital allocation, or entrepreneurship, for a local entrepreneur, the more localized you can make those decisions, they’re just gonna have better outcomes, because, well we talked earlier, incentives.
Who has the most incentive to serve their local community? Well, the person who lives there, right? Not the external NGO, or whatever external actor. Another thing I thought that was really interesting is, it’s almost like the teach a man to fish…or maybe that’s the wrong metaphor. But your model is more about letting others succeed with their God-given abilities, and so it’s almost like, if I’m thinking through what you said, giving capital to resourceful entrepreneurs, like, well, that’s the goal of every greedy venture capitalist, right? It may coincide with an altruistic motive, but economically, that’s a great thing, right?
Jim: I think it’s actually quite ironic, I’ve come full circle. You know, I started off, you know, pure business, and then venture, and really, I came… And there’s obviously some bias there, but I came to really conclude, after literally a decade of doing it another way, that the best way is through what I was doing back 15 years ago. Hey, investing in entrepreneurs. I think the, if you will, the thing that I innovated on was, okay, investing in entrepreneurs, but how do you invest in entrepreneurs? Is it just the 2%, 20% carry venture model? Does that really work?
Andy: That doesn’t even work for most GPs in the venture capital world.
Jim: Yeah, well, we could argue that. You’re absolutely right, right? I always joke, it’s ironic that the sector that finances the most innovation is probably the least innovative, finance, right? We’ve been stuck with the 2%, 20% carry model since the 1970s, 1980s.
Andy: Yeah. So, okay. Let’s go back up, though, to this big demographic story, because I think that’s another component here is, as you mentioned, in emerging markets, in Africa, there are so many entrepreneurs, there’s a spirit of entrepreneurship. And there’s also a huge demographic boom, contrasted with the West, with Europe, with America, Canada, these Western countries that are in this progressive demographic…frankly, it’s not good demographically, whereas other continents, other countries, from an economist’s perspective, this demographic boom is a huge opportunity for investors. So, from a human perspective, but also this demographic perspective, there’s this growth occurring, but there’s also a $5.2 trillion financing gap. That’s according to World Bank. And maybe it’s even larger than that, I don’t know. But that’s the stat that I got in my research.
Jim: Just with small businesses, by the way, and that’s not even just business in general. That’s just small businesses.
Andy: So, we have so much of global population growth is occurring in these countries, which is a good thing, from an economic point of view, but the capital is not being allocated there. The financing is not being allocated there. And, in your opinion, is this problem getting better? Or is it getting worse? Is it just this gap, that companies like yours are changing?
Jim: I’m an optimist, so I’m gonna say it’s getting better. But it’s actually both, right? The population is growing, like you said. Africa is gonna add another billion people to the continent in the next 25, 30 years.
Jim: And the rate of growth, you know, there’s huge variability. You have places like the Congo, which is a failed state. You have other places that are clearly failed states, and then you have other countries that I can objectively see, and say, “They’re the future.” And what I like about being in Africa is that there are so many future-seeking people on the continent, whether they’re African or even people from outside Africa, trying to create the future. That’s really interesting. We have rates of growth of six double-digit growth in some of these countries. And that’s just going to continue. Yeah, there are challenges, but that’s gonna continue.
Andy: Yeah, and, I mean, just that top line, that’s so different from Italy, or Japan, where you’re not gonna see those kind of growth numbers in those economies because of this demographic issue, or even in the United States, we kind of paper over it, by having so much immigration, we kind of paper over it. So there’s just, like, this overarching growth occurring in Africa. And as you said, there are some failed states there, but there are other nations that have…
Jim: Can’t treat Africa like one country, because it’s not. There’s great places, there are places that I wouldn’t step foot in, or at least not with my checkbook.
Andy: Well, I guess, how do you navigate that aspect? Is there some sort of way that you kind of quantify? Like, I’m thinking of things like the legal system, the court system. How do you start an LLC? Things that I would take for granted. How do you kind of navigate, and say, this country has enough infrastructure that I, you know, that kind of… What do you even call that kind of infrastructure, by the way? Is there a word for that?
Jim: Yeah, yeah, yeah. Well, I wanna take one step back there, because I think it’s easy to wanna cut and paste how you do things from Europe and the U.S., and just say, “Oh, we’re going to do it exactly the same way as we did in the U.S.”
Andy: So I’m doing the exact thing that we were just talking about. I’m like, “How do you start an LLC?” and you’re like, well, no.
Jim: Exactly. So, it’s funny enough. So, I have a pretty massive portfolio of African companies. And the majority of them are actually domiciled outside of Africa, whether that’s in Delaware, or in Europe, etc., because of the reason you’re talking about. A lot of these legal systems don’t have great mechanisms for starting and running and managing a company. But to answer your question more directly, we look at all the factors that allow for companies to grow in that country.
So, yeah, you have to have enough of a legal system to be able to enforce contracts. Okay. That’s pretty basic. You have to have a currency that is maybe not low-inflation, but at least somewhat predictable. You can’t suddenly have a 50% devaluation overnight, because so many other things happen. You have to have growth. The right economic policies by the government to have growth. So, identifying where those places are is actually the easy part. And most people have already identified them. There’s obviously debates on which ones are and which ones aren’t. But everyone knows South Africa is a powerhouse, Nigeria is a powerhouse, 200 million people. Egypt is a powerhouse. East Africa, including Kenya and more debatably, Uganda, they’re all powerhouses.
Then there are some outlier states like Senegal. Okay, small market, but really innovation and business-friendly government policies. Ghana, again, smaller population, but really innovative, and so on. There are enough of these places with enough of a market to be interesting. Just, like, Nigeria alone, 212 million people, and growing. So, if you get it right, all of a sudden, you have 200 million customers. That’s two-thirds of the size of the U.S., right?
And so, with very little infrastructure, with very little functioning economy, that is just being built today. So, I think identifying the markets is a bit easier. I think the challenge, for most, is the fragmentation. Each one of these markets is actually quite different from each other. So, you can’t go, “We’re here, Africa. We’ve got our $300 million fund. We’re here.” It’s just not gonna work that way. You have to understand each market, you have to be part of and immersed in the ecosystem of each of those markets. You have to have all the contacts, the right contacts, in those markets. And, you have to have some experience in both success and failure in those markets. Otherwise, you’re gonna screw up. And so…
Andy: That makes sense. I mean, you don’t want to waltz in and think you know how some place works. I mean, how important is it, from the standpoint of an investor? I guess it’s kind of like LP versus GP. I guess you’re talking about it from the GP’s perspective. You need to be there, you need to know people, you need to have relationships, and you can’t take anything for granted, right? That’s really from the GP perspective.
Jim: For sure. But I see a lot of folks who try to helicopter-invest, and not too dissimilar to how it even works in the U.S., like, “Oh, yeah. I heard this company’s great. And I don’t know anything about that market, but because everyone else is kind of doing it, why don’t I put some money in?” And I see that a lot, especially from American investors who just wanna get exposure to Africa. First of all, I think it’s a good thing that they want exposure to Africa, I think that my fear is they just go with the flow, make hyped investments, lose money, and go, “Ah, I knew it. I was gonna lose my money”
Andy: Like hopping on to Bitcoin at $55,000 or something, it’s, you got in at the wrong time. Yeah, the people who make the money are more enterprising than that. They are against the grain.
Jim: And so, I think, about being there, in my mind, I’ve invested so much in Africa. And I have a broad portfolio in Africa, not necessarily because I expect to make a lot of money in the next five years, but because I wanna be there and understand the market, both through successes and failures, and both. Fortunately, there have been more successes than failures. Then, when things really, really, really turn to the positive, I’m there and I know what’s going on. I think we’re already…
Andy: To make an analogy, it’s probably not a perfect analogy. But, in China, they started to open up a little bit in the 1970s, I think, was it Deng Xiao Ping, or… And then, obviously, companies that kind of got in early, multinational companies, some of them I imagine were rewarded quite well in the 1990s.
Jim: Well, you know, the ones who made out the best are the early equity investors and venture investors in Africa. There are whole funds, and whole companies, even, that because they invested in Alibaba, or TenCent, or whatever it was, way back when, that suddenly, they’re a major company.
Jim: Or a major fund.
Andy: But as you said, you have to get in early. So, let’s talk about your platform at Untapped Global. And Jim, you’ve alluded to this, but we’re not just taking a venture capital private equity model and applying it to Africa. You have a different model. I think it’s fair to say it’s a different model for investors, with different levers, different metrics, almost a different way of thinking. So, I guess, could you walk us through, versus a private equity fund or something in the United States, how do you invest differently in Africa?
Jim: Yeah. So, I think it’s important to preface that. I started off, and I still do a lot of equity investing, what I would call standard early-stage tech investing, in Africa. And there’s a lot of opportunity for that. But in that process, I also discovered there are many other kinds of companies, especially capital-intensive companies, that just didn’t fit that venture model very well, but were generating lots of profitability and cash flow, and had tremendous potential to scale. But the venture equity model, i.e., you buy shares of the company, and you wait 10 years for an exit, that’s not going to be useful for every single opportunity.
Andy: So, just to pause you there. You’re still looking at companies that can scale, so you’re not looking at, on the one hand, at venture capital-type companies, where you do an equity investment and have this huge exit. That’s one thing. You’re not comparing that to a micro-business or a micro-entrepreneur, which is all fine and good. You’re actually talking about other types of businesses that can actually scale to be huge, but they just require a different model than a venture cap. We’re not talking about micro-businesses, I guess, is, to clarify.
Jim: Yes and yes, I would actually say. So, I think the opportunity is we’re investing in companies that are tech-enabled, and they look like venture-investable businesses, but they’re actually enabling the micro-entrepreneurs. Because, again, you’re adding a billion people to this continent. Right now, 70% of the economy is “informal.” How do you define informal/formal? That’s a different question.
Andy: Jim, it means we don’t pay taxes on it, right? That’s what it means.
Jim: You don’t pay taxes on it. Exactly. They’re mostly run by micro-entrepreneurs.
Jim: What are we talking about? The motorcycle taxi driver.
Jim: That’s the lifeblood of the economy in Africa, right? People moving around on a motorcycle. It’s a merchant that sells cold drinks from her refrigerator. Well, where’s she gonna get the refrigerator? Where is she gonna finance her inventory? It’s the farmer who needs mechanized irrigation. Where’s he gonna get that irrigation? All these things require stuff, capital financing, etc., etc. And none of them, or very few of them, are actually venture-investable.
Andy: They almost sound, not exactly like infrastructure, but in a way, infrastructural. As you say, it’s a layer, that’s kind of…
Jim: I would argue it is infrastructure. But it’s just infrastructure operated and financed in a different way than the way it was financed in the U.S. And even China, right? So much of this was top-down. “Hey, we’re just going to do a huge amount of financing, and build all these bridges.” Done. In Africa, a lot of the infrastructure of how people move around, mini-buses, push taxis, you want to call them, or motorcycle taxis, or just about everything, really, is driven by the informal economy, by micro-entrepreneurs finding a solution, making it work, and delivering value to their community.
Andy: In this situation, you wouldn’t want to own a company that’s entirely vertically integrated, right? I don’t think. Or maybe you would.
Jim: Well, so, that’s what a lot of people try. And I would call that a little bit of cutting and pasting the models. It’s like, “Oh, yes. We’re gonna come in, and we’re gonna come in, and we’re going to take over all the taxis in this country.” Okay. Really? There are a lot of barriers there, and how are you gonna do that? Anyway. I can guarantee you that company’s gonna fail.
But if they come in and say, “You know what?” and this is, I think, what’s changed between now and, let’s say, 10 years ago, “We’re gonna come in and digitize that entire business. We’re gonna let everyone do what they’re already doing today,” which is to lease a motorcycle, ride it, make money, and deliver a really valuable service, “but we’re gonna digitize that. So, we’re going to figure out how to make it easier for the motorcycle taxi driver to get a motorcycle in the first place.” And he, it’s usually a he, driver, is going to pay for it on their phone. And they’re gonna pay for it by the day. And boom, you’ve just digitized a loan-sharking business. And you’ve added all this value, because you brought in more capital, and you made the whole model more efficient.
Andy: And that kind of soft infrastructure enables so much second and third-level economic growth, right? I mean…
Jim: So much.
Andy: Is that productivity? If I’m using my economic…
Jim: Absolutely, productivity. You’re doing more with less. That’s productivity, right? It’s exactly what the digital transformation, as a lot of people wanna call it, is doing. All we’re doing? We’re financing that digital transformation. We’re using the data coming from that digital transformation to help us do the underwriting, in a new way. So, instead of saying, “Hey, Andy, how much money do you have? Oh, you have 1000 bucks? Okay, well, I’ll lend you $600. Instead of saying that, what we’re gonna say is, “You know what, Andy? We’re going to…” this is a stupid example, but just bear with me here, “We’re going to lend you all the equipment you need to do this podcast. And you’re gonna collect your revenues online, because you’re gonna have these great subscribers, because you’re a great podcast host, right?”
Jim: Yeah. I collect it straight from your PayPal payments. That’s it. And then, within six months, you’ll pay off all your equipment for podcasting.
Andy: So, it’s collateralized off, perhaps, income on usage of the equipment, versus my assets from day one, which is inherently going to work better, because you’re financing people that are willing to work, and that are entrepreneurial, and that will create the income stream, or grow the income stream that they already have, if they’re only given the right tools, so why apply some sort of asset test? It doesn’t make sense.
Jim: I would say that there are three things that are different and transformative about this approach. And by the way, this isn’t new. A lot of people do this. In the U.S., a lot of people do factoring deals. There’s the company called Pipe, that provides loans to SaaS companies. So, it isn’t new.
Andy: But that’s, in the United States, though, it’s niche. Whereas what you’re talking about, this is more a core thing, that is applicable to the majority of these entrepreneurs.
Jim: Well, I would argue that that’s, like, a side project. That’s innovating at the margins. In Africa, this applies to everything. Everything. Literally, everything. And so, the market is actually much, much bigger. And so, the three ways that it actually transforms how finance works is, number one, it’s forward-looking, not backwards-looking, right? Just like we said. It’s not what you already have. It’s how much value you’re gonna generate in the future. That’s number one. Number two, because we’re using data to, because we’re getting in all this data, because it’s all digital, we’re using data to assess the credit risk. And I don’t mean data like how often did you pay back on time? No, no, no. We’re using data of how healthy your business is. “All right, Andy. How many subscribers and revenue did you collect last month? A million bucks? Great. Well, I’ll give you a loan for 60% of that.” You’ve been collecting a million bucks a month for the last 12 months. It’s very likely that you will continue to do that.
Andy: And I presume that if folks are transacting through their mobile phones, the cost to collect, process, analyze, underwrite this data is virtually zero, right? It’s super-efficient.
Jim: Exactly. Exactly, exactly. And so, the third way it’s transformative is because you can completely change the servicing of the financing, just like you said. So, instead of saying, hiring some mean person to call, “Andy, where’s my loan repayment? Andy, come on. I’m gonna send somebody after you. Or if I can’t get you to answer my phone, I’ll sell it to some collections agency for 80 cents on the dollar.” Instead of doing that, I’m actually collecting straight from your PayPal account. That digital transformation has happened in Africa. Every day, literally, there’s a new business popping up that it essentially, I call it servicizing, turning something into a service. I call it.
Andy: And is a lot of payment transactions in Africa occurring by mobile phone? So, it’s like, this…
Jim: Even more so in the United States.
Andy: Wow. Okay.
Jim: So, in the U.S., we’re dominated by credit cards. Everything is through mobile these days.
Andy: Yeah, it’s interesting, you know, in Asia, in certain countries, they kind of have almost leapfrogged the telecommunications infrastructure in the United States, in many cases, going straight to mobile phones, whereas it took, in the United States, it took a while to kind of go from landline and cable, DSL, all this telecom infrastructure. Really, once you have your mobile phone, presuming that you have a good connection, you’re tapped into the global infrastructure of whatever.
Jim: Yeah. I wanna key in on the thing that you just said. And sorry to go a little bit philosophical here, but I think it’s an important philosophical idea. We’re leapfrogging, sure, in the payments, and everyone knows about things like M-Pesa in Kenya, where everything’s through mobile phones, etc. But I think where the most interesting leapfrog is, in our current context, is going straight from a analog, peer-to-peer economy, which is what it is, or what it was, certainly, 10, 20 years ago, skipping the centralization phase, where everything had to be part of a company for it to work, and going straight towards a digital peer-to-peer economy. So, instead of every taxi driver working for a taxi company, everybody can be an independent taxi person, or driver, I should say, and then transact over a digital platform.
Andy: Interesting. So, this also has implications for, what’s the word? Almost, like, organizational structure, organizational design?
Jim: Yes. And this is why I think Africa is so…gosh, well-placed is the wrong word, is such a incredible canvas for this. Sure, you have China. You have a strong central government. Well, too strong, perhaps, many would argue, right? So you can control everything, and make things work, despite the inefficiencies, despite the abuse of human rights, etc., etc., etc. Right?
Can you do that in Africa? Eh. Not at aggregated scale. Right? You can’t unify the whole continent. You can’t even unify any of it. So, the only way this will work, the only way efficiency will be created, in many of these markets, is if you digitize it. And that’s what’s happening. And what our company is doing, essentially, financing that digitization, not just with equity investments, but we’re basically saying, let us be your venture debt provider, if you will, and help you go from 1000 motorcycles to 100,000 motorcycles. Help you go from 30 pay-as-you-go solar-powered refrigerators to 5000 pay-as-you-go solar-powered refrigerators. From 100 pay-as-you-go water pumps to 10,000 pay-as-you-go water pumps. And this is where I’m gonna go all the way back to the beginning of the conversation, because where else are you gonna get that money? You gonna go to a venture? Well, I think it would be foolish to fuel that capex growth with venture funding. And any startup entrepreneur knows that. And commercial capital? Ugh. Painful. And slow. And you may never even get over that chasm to get there. So, we’re filling in that gap, and we think it’s a $5.2 trillion gap. The World Bank says it’s a $5.2 trillion gap, and we think we can capture that for all emerging markets, not just Africa.
Andy: So, understanding that the model is different in a lot of ways, the underwriting is different, the scaling is different, etc., etc., but is this essentially private credit, then? You know, like, a new form of private credit?
Jim: It is absolutely private credit. And there’s nothing wrong with credit, but private credit with a different way of underwriting. I think that’s the critical piece.
Andy: Yep. So, then, I’m gonna shift…I’m gonna take off my saving-the-world hat, and I’m gonna put on my investor hat, investor-who-wants-high-returns hat. How does this work from the perspective of an LP? And by the way, private credit, far from being a bad thing, I mean, it’s the grooviest thing since sliced bread right now. I mean, it’s a very, very popular asset class right now, and so, this, you know, there’s nothing wrong with, to me, there’s nothing wrong with ascribing that label to it, and then saying, “Here’s how it’s different.” But how does the platform work? What kind of returns, IRR, do investors target? You know, are your investors, are they looking at it from that financial lens primarily, or is it…?
Jim: Yeah. So, we get both. We get folks who look at it primarily from a commercial lens, or a return lens. And we also get folks who do it initially, primarily for impact reasons, but then scale up, or get hooked, if you will, for the returns. We have people who start off with a quarter of a million, and then, before you know it, they’re at $3 million. Because they realize, “Oh, this is working. And the data is there to show that it works.” And that’s the way we want it. You can’t do it just on somebody’s word. You gotta see the data. You gotta see that this is truly giving you a return before you can do it.
But, let me just…the short answer is double-digit returns. Right? Investing in short-term… We’re not talking about wait 10 years for your equity investment to give you something. But in as short as three to six months, you can get really good returns, because we’re investing these things, and they generate money immediately. And we use that cash flow to pay people back. I kind of like to equate it to, it’s as if you’re investing in 1000 pieces of real estate, and just taking a portion of the rent payments that they pay, all digitally. And so, the moment you buy into it, you get a return because there’s cash flow. But I wanna actually compare that to what’s happening in the market, because I think people are like, “What? What are you talking about? Twenty percent returns? You must be taking advantage of somebody.”
Wait. The current rates that most small borrowers pay in emerging markets is 80%, 90%, 100% interest. Or, if they’re a bit more stabilized, or slightly more medium-size, they’re probably paying 30%, 40%. And it’s only those who can borrow a million or more, they’re getting, you know, in the teens. And so, when we’re able to give people on-demand liquidity, generate 20% returns, and we are able to then deliver that to our investors, not the entire 20%, because we make a spread. That’s how we make money. But they get returns in their teens.
Andy: So, it’s just interesting, to your point, the nature of entrepreneurship, and productivity. It’s not about dividing up a fixed pie, and if I get a bigger slice, you get a smaller slice. When you offer entrepreneurs credit at a dramatically lower interest rate than was available previously, and at the same time, offer investors an attractive return, it’s creating new value, that’s not, it’s not stealing from anyone else’s slice of the pie. That’s actually creating bigger slices of pie for both of those stakeholders.
Jim: I like to use the phrase, “we’re creating opportunity.” And a lot of people, “Well, that’s too vague.” It’s like, “Yeah, I know it is,” but I believe fundamentally, that is what we are doing. We’re creating opportunity.
Andy: I love it. And, Jim, I have one more investment kind of question for you. I’m sure you get this one a lot. Very practical question. If you’re a U.S.-based, high-net-worth investor, or family office, what kind of tax form do you get? Is this…you mentioned Delaware. Like, do I get a K-1? Do I get a 1099? Speaking personally, that’s always my main hurdle when I’m examining an alternative investment. I’m like, “What kind of paperwork is this gonna generate?”
Jim: Yeah, yeah. I know. It’s very straightforward. When there is a disbursement, and you can choose when you get a disbursement, you get a 1099-INT, because it’s interest that you’re getting.
Andy: So, that’s just like at Chase Bank, or whatever. It’s just a 1099-INT. Wow. So, then, it is, essentially, is it domiciled in the United States? Like, I’m just getting…
Jim: It’s a Delaware C Corp domiciled. Yes.
Andy: And is it currently gated to accredited investors?
Jim: Yes. Unfortunately, we’re offering under a Reg D 506(c). So, it is only for accredited investors.
Andy: That’s not a problem for me. I mean, that’s what we cover on the show, is 506(c)s, and so it’s not a problem for me. I just, and some of these, I would say this. I’m all for increased access. But I think there’s also the aspect of, with alternative investments, you have to be willing to do your research. I don’t know that accreditation status is necessarily the best way to gate-keep that. But, any kind of private credit, any kind of alternative investment, investors have to be willing to do the research.
Jim: And the accreditation is, especially given the fiasco in web3 and a lot of the crypto investments, and what’s happened there, I think those rules are there for a reason. And they’re annoying. But, look, we number one. We can’t choose not to be. And I think there’s good reason for accreditation requirements and so on. So that’s what we’re living by.
Andy: Fair enough.
Jim: I do see us, one day, seeing us offering a retail offering, but that won’t be immediate. That may be through web3 channels, but right now, we’re focused on accredited investors.
Andy: Understood. Well, that being said, where can our audience of advisors and high-net-worth investors go to learn more about Untapped Global and your platform?
Jim: Yeah. So, you can go to our website, untapped-global.com. It’s with a dash between “untapped” and “global.” And accredited investors can start investing with as little as $350. Of course, just to let you know, the yields go up significantly with the ticket size. But if you want to be part of the emerging market picture, and just learn about what’s going on in emerging markets, and get your feet wet, you can do it for very, very little.
Andy: I like that. That’s very intriguing. You can offer people an on-ramp, if you’re a little bit.
Jim: Yeah. We automate the whole process, so… And we see the future as, going back to what I was saying earlier, we see the future as letting as many people as we can have exposure to Africa. Even if it’s just to learn about it. Because we think it’s, at least my journey has been, once you meet an entrepreneur in these markets, once you see the value that’s created with just a dollar of investment, there’s no turning back.
Andy: I love it. I think that’s a perfect note to end on. Jim, I appreciate your sharing your inspiring story, but also just the platform that you’re doing, that’s obviously changing so many lives in Africa, enabling so many entrepreneurs in Africa. It’s also a great investment product for our global listenership and viewership. So, thanks again for joining the show today.
Jim: Thanks. Thank you for the opportunity to talk about it.