Play Business Making Investment Accessible to AllBy Andrea Villar | Fri, 12/18/2020 - 05:00
Q: How has the crowdfunding market evolved in recent years?
A: It has undoubtedly become very professional. Many years ago, crowdfunding companies started with very little capital and human resources and only a very clear vision. Today, nonetheless, there are more professional and experienced teams, and regulators understand us more. We have not yet reached a point where there are experts in the industry, laws, and standards, but I think we are on the right track. Hence, users are becoming increasingly interested in this type of accessible investment opportunity, all while a particular niche of individuals are also further educating themselves on financial knowledge.
Q: How has the appetite of companies and individuals to invest in this business model changed?
A: It is becoming more and more attractive to everyone. The reality is that, although we are not removing the intermediary because we are now the intermediaries, we have made the operational processes so efficient that we can now accept investments with modest amounts of capital. That is incredible. In the past, the best investments have only been available to people who are very financially adept and from the highest socioeconomic status. That has always seemed unfair to me. I am not against people taking advantage of investment opportunities and making their money grow, but I am against the middle class not having access to said investment opportunities and returns. The industry, which was created and nurtured by companies like Play Business, who pioneered the development and regulation of the FinTech industry in Mexico, has been able to create investment vehicles so efficiently that we can now offer these unique opportunities to people who did not have access to them in the past.
Q: How has Play Business' portfolio evolved in recent years?
A: When Play Business was born, we started with a portfolio of startups because this was a new and disruptive industry. From our point of view, the way to penetrate the market was through early adopters: people who dared to enter their personal and payment information into a website in order to invest. We targeted early adopters given that, up until recent years, e-commerce was not a common practice amongst consumers because people were afraid of sharing sensitive information online, especially when performing sophisticated activities such as investing. But, soon our vision of solely focusing on startups evolved to create many distinct and unique investment opportunities that no other crowdfunding platform offers. We want to allow anyone over the age of 18 pertaining to a mid-level socioeconomic stratum, to find the investment opportunities that best suit their financial and personal needs and goals and build a diversified portfolio. There will always be a long way to go but we are heading steadily towards it.
To classify each investment opportunity offered through our platform, we developed four investment categories: Stable, Moderate, Dynamic, and Disruptive. These categories were meticulously created based upon the most basic investment premise: the direct relationship between risk and return on investment. Our objective is to facilitate the understanding of each investment opportunity so that our users and investors can select the ones that best fit their personal and financial goals. For example, the amount of risk and return on investment that a person who still lives with their parents is looking for is very different from that of a person who has children. We want to make it easy for them to make an informed decision before investing.
A common message in this industry is that there are only a few good investment opportunities. The reality, however, is that there is no ideal investment that fits everyone. We believe that no investment opportunity is better than another, but rather that everyone has different needs; therefore, each person must find the ideal investment opportunity that best suits their profile and goals. Only then does an investment opportunity become attractive.
There are high-risk investments that produce high returns, as is the case for startups. However, there are also investments with moderate risk levels and returns, such as franchises and company-wide investments. The former is a royalties investment opportunity, where one can invest in specific points of sale of a given company and obtain returns from the sales of said points of sale. In the latter, an equity investment opportunity, one invests in the entire company and, consequently, obtains returns from the sales of the whole company. In Mexico, Play Business is one of the few crowdfunding platforms that has already applied before the Mexican Banking and Securities Commission (CNBV) for a FinTech license for both equity and royalties crowdfunding.
Recently, Play Business has launched a new product where people can invest in real estate funds. Here the investment opportunity is much more stable, as it carries a very low risk and produces modest but stable returns. Our new product’s portfolio only contains AAA brands with over 200 properties valued at MX$5 billion (US$250 million). This specific real-estate fund owns all the properties and collects their rent.
Up until October 2020, we had funded over MX$400 million (US$20 million) for more than 125 companies, and we are excited to continue to grow and develop more new products in the future.
Q: How do you guarantee the highest possible success rate for investors?
A: No company regulated by the FinTech Law can guarantee anything. Nonetheless, in Play Business, we make every effort to lower the investment risk as much as possible. We have, for example, a large and highly specialized team for both financial and legal due diligence affairs. Moreover, all companies that aspire to have a FinTech license from the CNBV go through multiple legal reviews, such as the credit bureau. We have also developed an automated solution that carefully monitors and reviews the performance, sales, and transactions of each company that obtains funding through our platform; thus, ensuring that the information they provide us does indeed match that provided to the SAT (IRS equivalent in Mexico). Doing so also allows us to continuously reevaluate and restructure past investment conditions to improve the overall investment opportunity to further benefit investors. And of course, there is also the approval from our users and investors, who review the business and crowdfunding model of each investment opportunity and bet on it with their own money.
Q: Is a change of mindset in society toward crowdfunding necessary to make more capital funds available?
A: Given that crowdfunding is still very new in Mexico, I do think that the Mexican market has to keep broadening their minds and remain open to trying new ways to invest. I do, however, think that this process has started and will continue to develop and permeate into the market. I think of it as a similar process to the one smartphones went through. I had many conversations with experts who said that a smartphone was a premium object and that having internet on a mobile phone was something that only certain sectors of the population would have. They even said that it was about educational or generational factors. But today, everyone I know has a smartphone with internet connection, regardless of their age, education, or socioeconomic level. It is true that there were agents who helped make this a reality, but there was a revolution following their development.
There is a universal truth that says no one is at odds with their money, meaning that no one wants less money than they already have. People want to make more money. It is also true that the most educated people on the planet are those who invest the most. However, I think it is condescending to say that investments are and should continue to be reserved for the most educated. There are crowdfunding platforms of all kinds, some more reliable than others, and that has given the industry a bad reputation. It is not easy to invest. It takes a lot of education. But a company can do that for people. It is like an iPhone: designing it is difficult but using it is not.
Q: How has the Fintech Law impacted the crowdfunding industry?
A: The FinTech Law has positively affected the crowdfunding industry by regulating the operation of existing platforms while promoting the formalization of the sector. This, in turn, will provide greater certainty and confidence for people looking to invest modest amounts of capital in growing or established companies for the first time through this model. Considering that around 80 percent of people in Mexico do not invest, this regulation is not only significant to improve the financial health of potential investors, but further enhances the prospective volume and growth for the crowdfunding market.
However, I think not everyone knows what it means to be regulated and, if they knew, they would have more confidence in the industry. Being a regulated crowdfunding platform raises the quality standard in the provision of financial services and products. This clearly benefits users because it forces companies to have more reliable, efficient, and functional platforms. Nonetheless, it also means that more human, technological, and monetary resources are needed from companies in order to comply with the obligations that the FinTech Law establishes; sometimes this also means investing in expensive developments or hiring third parties to carry out certain tasks, all of which affects the company's operation, finances, and products. I am not sure that the impact of the FinTech Law for the industry is tangible yet but, in the long term, it will be significant.
Q: How will Play Business capture customers in the low-income segment?
A: Everyone has to make their contribution. In the world of investments, reaching the base of the pyramid can be difficult. The reality is that for us to grow, there have to be more people who are part of the banked population, connected to the internet, using less cash, and aware that investment opportunities exist and want to make their money grow. But, we do not see ourselves as solely responsible for achieving everything given that there are many factors that need to be considered in order to attain this. However, as a sector, we are going to solve all these problems step by step. There are many companies, including Play Business, doing incredible things to promote financial education and to bring people into the banking system. If everyone specializes and becomes an expert in their own field, we will be able to build a wonderful success story.
Q: What lessons have you learned this year?
A: Before the pandemic, Play Business made good financial decisions that were often misunderstood and criticized by people because, as I have previously mentioned, financial education is uncommon within the Mexican market. In addition, we were also not as aggressive as other companies in the same industry. Today, however, we can start to see the results of those decisions: we have not gone bankrupt and are still a profitable company. This in particular has been a very important and valuable lesson for me, because I have seen many companies go bankrupt and close their doors over the course of this pandemic and subsequent economic crisis.
We realized that our plans and vision for the future could allow us to become the only crowdfunding platform to offer multiple and varied investment opportunities that allow people to diversify their portfolio by industry, type of company, financial instrument, risk level and return on investment. So, we launched a new product in the middle of the pandemic and went for it. During this time, we also reinvented ourselves as a company and repositioned our brand, a very rewarding and eye-opening process. If anything, we have used this crisis as an opportunity and appreciate it showing us that we have a resilient team whose only constant is to innovate and is prepared for anything.
Play Business is the only crowdfunding platform that allows users to invest in various types of prime investment opportunities with small amounts of capital starting from $5,000 MXN (~$200 USD). To date, it has funded over MX$400 million for more than 120 companies