Play Business – connecting investors with early stage startups
Company Background
Founded in 2014, Play Business (PB) is the first and largest equity crowdfunding platform in Mexico. It targets first round investment for non-accredited investors and helps startups get to institutional investment faster while giving investors the opportunity to have equity in the most innovative startups in LatAm.
While other Fintech investment companies or platforms utilize machine learning for credit models to determine their lending rates and amounts, Play Business utilizes machine learning in marketing efforts towards entrepreneurs and investors as well as for investment recommendations based on past investments and profile data.
Participants – Non-Accredited Investors (Buyers) / Entrepreneurs (Sellers)
Value Unit – Investment and ROE
Filter – Risk Tolerance and Investment Thesis Fit
Play Business’ website: https://playbusiness.mx/
Problems & Opportunities
Investing within the PB ecosystem is easy, investors only select a startup and an amount to invest, and fill the required information.
However, PB and other equity crowdfunding platforms face one main problem: most users are unfamiliar with evaluating the quality and reliability of early stage investments. This can lead to excessive research time and undesirable investment results for the investor, who is in need of further guidance to find a good match. Currently, a list of proposed investments populates based on a “liking” system that bubbles up popular choices and a “favoriting” system to indicate investments of interest. Examining the startup side of the platform, little is available in terms of investor selection. Currently, the matching does not seem capable of high degrees of customization.
Effectiveness and Commercial Promise
Improving the match algorithm for PB adds value as a platform in the following ways:
- Entrepreneurs benefit from getting faster funding and access to new capital without VCs’ meticulous requirements
- Investors benefit from having a new avenue to invest their money that was not previously available to them
- Overall, the public benefits from bringing to life ideas and innovation that address social, business and infrastructure problems
- Ease-of-use has greater value for the built-in compliance of platform contracts with Mexican Securities Law
PB commercializes this platform by taking a 5% cut if startups achieve their funding target, aligning the incentives of the platform with the success of businesses achieving funding.
Competition
PB currently faces two types of competitors:
- Equity-based crowdfunding platforms in the domestic market: These include local players such as Propeler, Crowdfunder and iVentu.re. However, PB remains the largest equity-based crowdfunding platform in Mexico, with the largest number of startups and businesses listed on its platform, and its small minimum ticket size allowing it to reach the largest number of investors.
- Other types of crowdfunding platforms operating in Mexico: These include donation-based crowdfunding platforms, such as Donadora por Fondeadora, reward-based crowdfunding, such as Kickstarter.
Improvements, Suggestions
We propose improving their match algorithm by increasing preference input on both investor and startup side and creating a “star” rating system rather than a binary “like” system. This would require both investors and entrepreneurs to create a detailed profile including variables such as industry, investment thesis, expertise, stage of the business, etc. In addition, we could rate data related to team consistency or investor commitment. Considering all the above, a matching algorithm would deliver a limited list of investors and ventures organized by best matches to the customers. In terms of adding onto the selection for both sides of the platform, we recommend taking advantage of machine learning enhanced marketing tools via Google or Facebook to find new potential investors. For each startup, due to the small investment size, many more investors are needed.
Risks
Cyber-security breaches remain one of the biggest risks in the crowdfunding space. Secondly, a notable increase in default rates and business failures due to macroeconomic conditions or turmoil in the financial markets could lower general risk-taking appetite, affecting the usage of the PB platform. Lastly, a potential collapse of a well-known platform due to malpractice would pose reputational risk to the industry as a whole. Further, while PB is well positioned from a regulatory point of view any changes therein could be problematic.
Sources:
2017 Americas Alternative Finance Industry Report: Hitting Stride
https://www.crunchbase.com/organization/play-business
https://www.forbes.com.mx/uber-debio-haber-sido-creado-por-un-mexicano-play-business/
https://www.forbes.com.mx/play-business-una-forma-de-invertir-y-colaborar-con-startups/