Give Hong Kong start-ups what they really need: an environment to grow and realise their ideas
Nisa Leung says the laudable government initiative to link investors with promising start-ups must focus on enabling true innovation, rather than picking winners
The government’s plan to set aside HK$2 billion to set up an Innovation and Technology Venture Fund to support local start-ups has been widely welcomed. But the immediate question following the applause is: how can the fund be used most effectively?
It is intended as a matching fund, providing one taxpayer dollar for every two private-sector dollars put in by venture capital funds. The government is apparently relying on venture investors to select the start-ups, which makes sense, as they are the experts. But since public money is involved and accountability required, there must be a clear criteria in the selection of investors as government partners as well as start-ups to fund.
Here’s the dilemma: if the start-up is worthy of investment, why do venture investors need to be encouraged or subsidised to do so? And, if the start-up is not good enough, why should the public, or anyone, support them?
This is not easy to solve. As in other markets, herd behaviour is not unknown in the venture capital sector. Fads and trends attract eyeballs and money. Some lead to success, but not all. Taxpayer money used to support innovation should not blindly follow trends.
Typically, only about 1 per cent are “hot deals” that attract many investors. Some start-ups get some interest from investors, but not enough to form a consortium to raise sufficient money. These companies can still be successful if investors help them with their strategy, market intelligence, customer and partnership introduction, and financing assistance. Government funds will make a difference if they can attract investors to look at start-ups in this way.
The government needs to make it clear that the venture fund’s success should not be judged solely on financial returns; it would be unrealistic to expect the majority of firms to succeed.
The more important objective should be to develop the whole sector, through such means as attracting more investors to work with entrepreneurs. In the Bay Area in California, for instance, on average, only one in 100 decide to invest in a start-up. If this figure is anything to go by, we need a lot more investors coming here.
The ideal venture capital partners for the government should have solid track records and specialise in trending sectors such as the internet, health care or clean technology, to provide expertise in market dynamics, particularly in China and the US.
The public must be persuaded to take a long-term view: the government’s job is not just to pick assured winners but also to encourage potential winners to realise their ideas, and to attract more investors to work with them.
Nisa Leung is convenor at Venture Investors Alliance of Hong Kong