Fractional ownership, which allows investors to own a share of a business or asset with much lower risk, has been around for many years. Now, Owners Circle is offering this structure to the investing public in Malaysia. CEO Jonathan Quek believes that the platform will take off as investors are constantly on the lookout for new channels to generate returns.

Fractional ownership has made it easier for investors to have a stake in a business. For a smaller amount, they can band together to own a portion of a business, thereby mitigating the risks involved. In exchange, they stand to get a return on their investment as well as other non-monetary benefits such as usage rights and priority access.

This concept is not new and can be compared with buying the shares of public-listed companies. In other parts of the world, the fractional ownership of luxury assets such as retreat villas, private jets, yachts and even race horses has been a common practice for more than a decade. 

Typically, many of these investment structures are private arrangements between friends and families. But now there are other structures being built by platforms that offer such services. For example, New York-based Jointli, Lagos-based Anap Jets and India-based Property Share offer fractional ownership of various asset classes, private jets and residential properties respectively. 

A proponent of fractional ownership in Malaysia, Jonathan Quek, co-founded Owners Circle to match local investors with private businesses. With the platform, fractional ownership transactions that used to be done privately can now be undertaken in a structured manner and are no longer be limited to one’s friends and family. 

He says the idea for the platform came about after a few friends wanted to start a wine bar. So, 12 friends got together and pooled their funds to set up a wine bar in 1 Mont’Kiara, a shopping mall in Kuala Lumpur. 

“[1 Mont’Kiara] is not a popular place. But with 12 influential investors who could bring their friends there to dine and gather at the wine bar, we kind of brought life to the place. Our friends told their friends about the bar too. With the profit generated, we opened outlets in Pavilion Kuala Lumpur and Penang,” says Quek. 

This got him thinking — could he turn this into a successful business model? With so many opportunities to invest in businesses, he believes the model will work in times such as these, when investors are constantly on the lookout for more avenues to generate decent returns. Thus, Owners Circle was set up in May. 

“The concept of Owners Circle is simple. We want to make business ownership accessible to the man in the street. Our platform is built to equip investors with the knowledge of analysing the potential of a business. Fractional ownership allows influencers [who are also aspiring investors] to come together and co-own businesses that they love,” says the CEO. 

One of the goals of Owners Circle is to enable current and aspiring business owners to have joint ownership of a business without the need for financing. Hence, some of the projects have a minimum investment of RM10,000. “With such an entry level, anyone can have ownership in several lifestyle businesses without taking out a loan,” he says. 

Quek is no stranger to the local investment scene. He is the founder of SilverMalaysia.com, an alternative investment platform that offers physical gold and silver for sale and education on the precious metals. He has conducted several financial education programmes, including “How to Invest Like an Idiot and Trade Like a Pro” and the Bursa Young Investors Club, initiated by Bursa Malaysia Bhd. 

Matching investors with businesses

Quek believes that fractional ownership is an attractive approach as it allows investors to enjoy a stream of income from their investment. “This is what being a fractional owner is all about at Owners Circle. We are helping to build joint ventures. Think of us as a matchmaker — we match business owners with property owners and aspiring owners who want to be a part of the next big thing in their community,” he says. 

“At times like these, when the economy is experiencing a downturn, there are many vacant properties waiting to be rented. Owners Circle also matches business owners with property owners to utilise these vacant properties for business purposes. I believe we can kill two birds with one stone.” 

The businesses Owners Circle looks to help include those in the food and beverage sector as well as those that require a vacant space that can be turned into an office space, event space, confinement home or concept hotel. Currently, it only considers businesses that have a three-year track record and are looking to scale up. 

Quek believes that these businesses are an underserved market and have the potential to generate positive cash flow. “They also depend heavily on word of mouth to market their products and services. In this day and age, the power of your network — think WhatsApp or Snapchat pictures of what you are eating or Instagram and Facebook posts on your great new café find — is greater than any advertising medium,” he says. 

Owners Circle also helps businesses with their marketing strategy. Quek says it boils down to the most fundamental approach to marketing — word of mouth. He says this strategy was a success in the case of the wine bar and believes that it will work for other projects too.

“If I have a café with, say, 50 co-owners, who are talking about the business and posting it on social media, what are the chances of us getting the word out about the café? Isn’t that how we are being influenced to buy things nowadays? There is a lot of potential in this,” he adds. 

Quek says investors should understand that the company is a business matching platform rather than an investment platform as it does not sell any investment products. So, investing in a business via Owners Circle is just like any other investment — there is a risk that they could lose their money. 

“Owners Circle does not receive any funding as we are a platform that only facilitates handshakes between owners. Should any of the owners wish to bring the venture a step further, they will need to go through an escrow that will facilitate the transaction,” he says. 

For the investors’ protection, Quek says any business that is interested to join the platform will be assessed by its due diligence partner — an equity research company that provides an unbiased review of the businesses. “We have a ‘circle of competence’ made up of experienced entrepreneurs who are financially free and currently on the lookout for young entrepreneurs with businesses that have good cash flow to mentor and invest in. The selected members of this circle will grill the interested business owners on their plans and give us the green light if they are good businesses to expand,” he adds. With these practices in place, he believes that the company will be able to identify good businesses to invest in. 

What kind of returns can investors expect by investing via Owners Circle? He says it depends on the projects the investors undertake. “The returns will be different due to the dynamics of each business. Hence, it is best not to compare the returns with traditional investing tools such as stocks or unit trust funds as Owners Circle is neither a financial house nor an investment vehicle per se.”

The difference between Owners Circle and private equity firms lies in the valuations of the businesses they seek out. Quek says private equity firms usually look for businesses that are worth RM50 million and above while his company looks for businesses that have valuations of RM500,000 to RM5 million. 

He acknowledges that illiquidity can be a problem with fractional ownership as the investors may not be able to find a buyer for the portion of the business they own. How does Owners Circle address this problem? 

“If you want to get into the [fractional ownership] game, you really need to get educated. We want to educate people on matters like how to analyse a business model or how to study the story behind accounting numbers. They will also learn how to interview the business owners to ensure that they have their partners’ interests at heart,” says Quek. 

“We also want to educate the business owners. If they want to build a joint venture with us, it is very important that their business partners can exit at any time without affecting the business. Every business owner has his own shareholders’ agreement to protect everyone’s interests.”

However, Quek stresses that the exact exit strategy depends on the business owner as Owners Circle is just a platform. Nevertheless, its vision is that investors must be allowed to sell their portion of the business at any time if they are able to find a buyer. 

Unlike equity crowdfunding platforms, Owners Circle does not charge a commission for its matching service. So, how does it generate income? 

“Currently, we only generate income when the business projects we invest in give us returns. That is why we are constantly on the lookout for high-yield or high-return businesses with minimal calculated risk for long-term investment. We want these companies to perform well. As investors ourselves, our interests are aligned with all the business partners involved,” says Quek.

“Some of my partners did not agree with this commission-free model and left the joint venture. But I focus on building a community of like-minded individuals who believe in the idea of collaborative consumption and that Owners Circle will take off. We are targeting 10,000 registered members for the platform by the end of this year,” he adds. 

Addressing gaps in the industry 

Jonathan Quek, co-founder and CEO of Owners Circle, is confident that the platform will take off among investors in Malaysia. Based on the company’s research, gaps can be found in the small and medium enterprise (SME) landscape. He has identified three main problems.

According to a Standard Chartered Bank report, piecemeal efforts of the government to promote entrepreneurship, such as R&D grants, venture capital financing and business incubators, have failed to improve entrepreneurial activity in the country. These approaches have tended to be transactional in nature and often focused on growing the number of firms without much attention given to their quality.

There is much to be done to create a landscape of thriving SMEs. Clearly, the problem is not a lack of access to financing but rather a lack of focus in creating initiatives that give deserving businesses the support they need to grow. “New generation venture building platforms such as Owners Circle could be the solution to this,” says Quek.

The second problem faced by local SMEs is marketing. SMEs that depend heavily on social media because of the perception that it is budget-friendly and efficient will find themselves competing in an intense marketplace. They will also need to fork out more money to get more viewers on such platforms. Businesses that do not factor in digital advertising costs will find it hard to compete and stand out in this arena.

Quek says by helping businesses to have multiple owners, Owners Circle is actually building an extended network of influencers who are naturally inclined to share about their business, such as a restaurant that they love and own, on their respective social media platforms. This becomes an organic marketing effect that is integral to the success of the business.

The third problem is financial illiteracy. According to a World Bank global survey, only 36% of Malaysians are considered financially literate. And in the past five years, more than 20,000 Malaysians have filed for bankruptcy. 

According to Bank Negara Malaysia’s Financial Inclusion and Capability Study, only 18% of Malaysians could survive for more than three months if they lost their main source of income and only 6% would be able to survive for more than six months. All this points to a pressing need for financial education among the population.

“A large part of what Owners Circle does is financial education. By heightening the population’s financial literacy, they can be better equipped to make sound financial decisions that will pave the way for the lifestyle that they want,” says Quek.

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