Since its establishment in 2018, equity crowdfunding platform Bizhare has channeled IDR 27bn in investments from retail investors to entrepreneurs. Unlike Santara, which focuses on local SMEs, Bizhare focuses squarely on working with franchise businesses, which was already popular among Indonesia's wealthier retail investors and would-be business owners. Twenty five franchise outlets all over Indonesia have opened for business after raising funds through Bizhare.
CompassList met Bizhare's CEO and co-founder Heinrich Vincent to learn more about how he is developing the new business model and the challenges Bizhare faced in obtaining its license. Vincent also shared some of Bizhare's future expansion plans.
What made you decide to develop Bizhare?
We started from the 1000 Digital Startups event held by the Ministry of Communication and Informatics in 2017. I met my co-founders there. I had invested in a few franchises before by pooling funds with my friends. At the time, I thought we could bring this concept to the public, so more Indonesians can pool their funds towards developing new businesses and more aspiring business owners can get funding. At the event, I met Gatot [Adhi Wibowo], who had 20 years of experience in the finance industry, as well as the other co-founders Giovanni [Umboh] and Wahyu [Sanjaya].
At the start, we ran the business with manual processes. We started testing with a WhatsApp group and spreadsheets. We channeled funds in the range of billions of rupiahs during that time, but all of the processes were done manually back then, including the incorporation of new businesses, so it was not exactly a tech-driven equity crowdfunding platform. Once we began handling more projects, we switched to an online platform. This started once we were incorporated in 2018.
How much investments have been channeled through Bizhare so far?
We have channeled IDR 27bn in investments and we have 34,000 registered users. Roughly 10% of those users have begun investments. We have 25 businesses already open for business.
How do you monetize?
We charge a platform fee of 5% of invested funds. For example, if you were to invest IDR 5m in a franchise, you will have to pay IDR 5.25m. This is included in the prospectus and when the person is about to invest, they will see the platform fee immediately.
Once the business is funded, do you charge any more fees?
We charge a management fee when dividends are distributed.
The OJK regulations were signed on December 31, 2018 and came into effect in 2019. What did you do before that?
Prior to the OJK regulations, there was only the "Inovasi Keuangan Digital" (Digital Finance Innovation). We registered with OJK under that set of regulations. We actively discussed the equity crowdfunding model with OJK and got involved in developing the regulations for this model. We started talking to OJK from April to June 2018. By the end of the year, the new set of regulations were released.
There was a long delay between the regulations being launched and Bizhare acquiring its license. Did business continue during that time?
Under the OJK regulations, we were not allowed to start new contracts before we got our license. During that time, we were able continue with contracts that were already in place before the regulations were issued.
By contracts, do you mean contracts that were already raising funds?
When a company decides to start issuing shares, it needs to sign a contract between itself, as the issuer of the shares, and us, the platform through which it offers shares. So we create the contract and perform the necessary due diligence before opening the share offering to the public. We were able to continue working on existing contracts, but could not sign new ones before we got our license.
Was there any part of the licensing process that you found challenging, especially for startups?
We were part of the early discussions about the regulations, but there were also improvements by the OJK. I think each startup will find different aspects challenging, for example, the minimum capital requirement [of IDR 2.5bn], but we managed to solve that. You also need an ISO 27001-certified data system. A new company could take a year to get the license and they cannot do business during that period. We were fortunate to start early and benefited from the transition regulations; newer companies will face higher barriers to entry.
What types of franchises are available on Bizhare? Which ones are more popular?
The majority of the popular franchises are F&B franchises. We recently started working with Donburi Ichiya, Flip Burger and RM Padang Sederhana Lintau 88. We also have services like laundries and barbershops, as well as [mobile carrier] Indosat and [convenience store] Alfamart.
How do you find these different franchises and convince them that their brand can expand through Bizhare?
While we work broadly with various SMEs, we focus on franchises because they already have a system for expansion. So, when we approach them to collaborate, they already understand our value proposition. Usually franchisees are single investors, high net worth individuals, but with us people can crowd-fund and don't need to be high net worth individuals.
How does Bizhare assess each crowdfunding project?
We work with both franchisors and franchisees. When a prospective franchisee posts its business plan and suggested locations, we go there with the franchisor to check the locations and perform a feasibility study. We only put the project on our platform when the prospective franchisee has cleared our checks and due diligence process. To do that, we interview the franchisee to find out their background, whether they've run a business before and how much they want to chip in. We determine whether or not they have the ability to run the business or, at least, own the location where they propose to start the business. In the case of the latter, we can work together and consider the rent money as deposited shares. Either way, the franchisee is recommended to have at least a 20% stake in the business.
Why 20%?
If the franchisee's stake is too small, they might not have the motivation to run the business. When they propose a location for the franchise, we want them to care about running the business too.
Does the franchisor have to own a stake in the new business?
Some chip in, while others are satisfied with earning royalty fees from the franchisee. Each franchisor's concept is different. Brands like Alfamart (convenience store) have a business model where they charge royalty fees and do not own outlets directly. Other franchisors of, for example, restaurants, prefer to have a stake and earn more dividends on top of the royalty fees.
What kind of returns can investors hope to earn?
It depends on the business, but the range is about 15%–30%. They can also earn capital gains when they sell their shares. The ROI is bigger than bank deposits, but it's not guaranteed; the businesses can suffer losses.
What are the main risks faced by investors and issuers?
Investors may see that the company's performance is not as good as they expected from historical analysis. For example, a competitor entering the market can lower their profits. There are also liquidity risks, like the share prices being lower than what they bought it for. For issuers, their ownership is diluted and they also face the usual business risks.
How do you minimize and mitigate these risks?
We do thorough analyses and due diligence checks on each proposal. We provide some tech assistance to help the business grow. We also have "after-sales" management to help the franchisees run their business better after it gets funded, although it's not a guarantee that they will be successful.
Bizhare has been running for almost three years now. Have you broken even?
As a business, we are already profitable, but we have invested back into the business, as we need to expand.
Speaking of investments, do you have external investors?
We received seed funding from Plug & Play incubator. We joined the program back in 2018. We are in the process of raising pre-Series A funding, which we aim to finish very soon, within this quarter. However, we can't disclose the amount at this moment.
What will you use the funding for?
We will be expanding, reaching out to more people so that they can begin investing on our platform. We also plan to add other types of franchises, including those in the education and hospitality sectors, into our platform. To expand to more regions in Indonesia, we will hold events to raise awareness, looking for new projects, investors and people who want to start businesses.
