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Into the Dragon's Den Hong Kong-style

Anna Healy Fenton reports on a programme designed to help budding entrepreneurs find potential investors

 

It's a bizarre but perennial problem. Hong Kong may be a city of entrepreneurs and small and medium-sized enterprises, but they all face the same hurdle - a reluctance by banks to lend them any money. Finding funding to get started is a big struggle.

Five years ago the British Chamber of Commerce stepped into this void with the Baker Tilly Angel Programme. Designed to help embryonic businesses find their financial feet and connect them with potential angel investors, the idea resembles the popular British television show Dragon's Den, where investors examine and critique the business plans of hopeful start-ups with often brutal honesty before deciding whether to give them money or show them the door.

Accountants Baker Tilly Hong Kong liked the idea so much they decided to sponsor the British chamber's scheme. But it is not just a case of turning up and presenting a business plan. 'They don't walk away with a cheque,' stresses Baker Tilly Hong Kong managing director Andrew Ross.

The programme is aimed at companies in a US$500,000 to US$2 million range where Ross says it's tough to raise finance. 'So the British chamber came up with a platform whereby young budding Hong Kong entrepreneurs could present a business plan and then through the British chamber's network of individuals they could be connected to people who would be interested in investing in their projects.'

British chamber executive director Christopher Hammerbeck, and Angel Programme chairman Neil Orvay and vice-chairman Iain Reed lead a vetting committee, with up to 30 small companies applying to take part in thrice-yearly angel finance rounds.

After an initial vetting, they are whittled down to about 16 and then a final four. First time round, they make a presentation for 10 minutes, followed by a five-minute question and answer session. Then Suzanne Watkinson, director of business for Connect Communication, takes them off for pro-bono coaching in improving their presentation skills. Financial experts on the chamber's committee help them tighten and focus their business plan.

'It's not just for British companies and not just for chamber members,' says Hammerbeck, keen to spread the net as wide as possible.

Businesses taking part have ranged from an educational publisher to a company making sunglasses for children, to custom-made shirts and suits online, a lot of IT or technology-related businesses, and even one shoe designer.

Start-ups face several key challenges, says Hammerbeck. They may have a stellar idea but are often short of time, personnel, marketing expertise and money, combined with an often ropey business plan. 'What we try to do is bring some help to them.'

After the initial vetting and coaching, the final four entrepreneurs make a presentation to angel investors at a quarterly British chamber breakfast. They have just 10 minutes to make a convincing case, with a further 10 minutes for questions. They then mingle with investors afterwards and must quickly make connections that may yield funding. 'It's not like Dragon's Den in that we don't have piles of Hong Kong dollars sitting in front of the investors,' says Hammerbeck.

Ross says the programme is sorely needed because investors are so hard to find locally. 'Anyone who has spare money in Hong Kong puts it into the property market, because it's easy for them.' You don't need partners or to worry about an exit strategy with property.

The idea of angel investing has only become prevalent in the last decade or so, coming from the United States and recently spreading to Europe.

Ross says banks won't lend to small businesses in Hong Kong because they want security, so unless you have got money to provide as a deposit, they don't want to take a risk.

'We spend quite a lot of time assessing whether an entrepreneur has a viable proposition or not, and I guess a bank doesn't want to have to have that kind of team in-house to do the vetting for such small returns.'

Is there any sign of this attitude changing? 'No. it's probably worse now than it was previously. The recent government initiative to guarantee business loans has been quite good in terms of helping people get funding from a bank,' he says. Banks are now calling people to see if they want to participate because they don't have any risk because its government-backed. 'Anything that has got no risk the banks will go for. With this they are getting their interest and the government underwrites it. It's good for small businesses and the government should publicise this success story more,' he says. But this scheme cannot help all the small businesses who need funding.

Under the Angel Programme, a common weakness in business plans and presentations show up time and again. 'They tend to be hugely optimistic with revenue and profit forecasts,' says Ross. Many are so caught up in their product that they give too much detail about it and not enough on the financials and how it is going to make a return for an investor. 'So we advise them to have a one-page summary on profit and revenue forecast and then go into the detail of the product after that. But they have to capture the imagination of the investor, so they think that, 'If I put in X, then my return is going to be Y'.'

Watkinson says the initial test for each batch of 30 or so hopeful entrepreneurs is readiness. 'How ready is their business, their team, their presentation and their numbers to put in front of investors?'

Common mistakes include talking to their slide shows and power points, overwhelming investors with information. They usually need to refine and focus their message, while retaining their enthusiasm, she says.

Everyone involved agrees that even if the entrepreneurs don't get any money, the selection process greatly helps them improve their business. 'It's a very valuable process. They learn a great deal,' says Watkinson.

One problem, Ross admits, is finding out who gets money because the committee is not privy to discussions between the angel investors and entrepreneurs. In order to evaluate the success of the scheme in financial terms they are working on trying to get feedback, because after a presentation, entrepreneurs mix with investors and the chamber doesn't track whether there has been any successful investment.

'They are on their own a bit from there.' The problem is reluctance on both sides. 'The investor doesn't want to reveal how much they have invested and the entrepreneur is often likewise inclined,' says Ross.

The breakfast meeting with investors is not the end of the story. After vetting, the business plans are put on a website and potential investors pay a small subscription, sign a confidentiality agreement and then can read the posted business plans.

'If they spot an interesting business plan they can follow it up,' says Ross. 'It's a great shop window and the vetting committee is very subjective, so maybe a potential investor might like something we were not so keen on.'

IT expert Tim Hay-Edie created the website free and committee members are all volunteers.

Applicants for the programme included advertising executive Calvin Yu and fashion stylist Shiva Shabani who previously could not find fashionable protective sunglasses for children. They spotted a gap in the market and in 2008 formed Sons and Daughters Eyewear.

In 2010, they were producing 'sunglasses so slick that parents wished they came in big head sizes', with Lane Crawford their first customer. They did the rounds of trade shows in the US, Europe and Asia and received a positive response from buyers. Within eight months they had 80 accounts around the world. With quality products handmade on the mainland to exacting safety standards, they think the sky's the limit.

With concerns over branding Sons and Daughters Eyewear properly, they decided they needed funding to move on to the next stage, even though the glasses are now stocked by Bonton in Paris, Caramel Baby in London and Mama Kid and Kapok in Hong Kong. The original seed capital came from investors in Hong Kong and they were advised to seek more funds by applying for the Angel Programme.

Passing the vetting stage, they made it to the final and say they found the whole process constructive and helpful. So did they actually get angel investment? They are cagey but say that as a result of the Angel Programme they are in positive talks with investors and are building good relationships with potential partners.

Entrepreneur Katherine Wood, managing director and publisher of the Get Reading Right synthetic phonics programme, is a poster girl for the scheme. She says her company benefitted hugely from going through the rigours of the British chamber's vetting process.

Synthetic phonics is a method of teaching reading, which first teaches the letter sounds and then builds up to blending these sounds together to achieve full pronunciation of whole words.

Although raised in Hong Kong, Wood, 31, was bored and languishing in an advertising job in London in 2007 when her father Michael, formerly an educational psychologist with the English Schools Foundation, suggested she come back and work for him in the educational publishing business he founded with Jo-Anne Dooner. Their business grew from seeing the potential for introducing the teaching of synthetic phonics into Hong Kong schools. They produced 60 reading books as the method took off.

Wood did not hesitate and jumped at her father's suggestion. A year later, her parents retired to Italy and Dooner went to Sydney, leaving her at the helm. 'It was a baptism of fire. I sat in Dad's chair and felt like a little child with my legs swinging,' she recalls.

As the business flourished, parents increasingly wanted to help their children with their synthetic phonics. Sharing an office with an interactive design company run by Jonathan Hooker gave her the idea of a games-based educational platform as a teaching tool. She joined forces with Hooker and her team of six has now created 600 different interactive teaching games for children aged four to seven - the world's largest synthetic phonics programme, she says proudly.

'We've just taken the principles of the books and what happens in classrooms and put it online,' she says.

Schools and parents pay a subscription but the new project, on top of the growing book business, gobbled up time, and weekends vanished under a mound of work. 'We realised we needed more resources and finance to do the online business properly,' she says.

She had heard of the British chamber's scheme and got the business plan template. It was harder than she thought. 'I wrote up my vision for the company and getting to that point was the most painful bit,' she recalls, but she found it constructive and resolved many of the business plan's flaws by the time she had to make a presentation to the chamber panel.

Get Reading Right was among those whittled down from 30 initial hopefuls to 10. She was nervous about what the panel would ask, but after her short presentation, there was a five-minute question and answer session with constructive criticism. She learned that she needed to strengthen her business model to make it more robust.

She was told by Watkinson to be more animated while Hooker was told to speak more slowly.

Through to the final four they went, along with Red Packet, which compiles gift packs of experimental presents, Sons and Daughters, and a health-care app enterprise.

The final round involved a 15-minute presentation to investors, who asked wide-ranging questions about education, the situation in Britain and the UK government's view of synthetic phonics.

It was a bit perplexing. 'You have no idea who's who or who's interested,' she says. Afterwards came the chance to mingle with the potential investors and the challenge of identifying and meeting who might be interested in investing. 'This is the critical time. It's up to you to make it happen,' she says.

So was it fruitful? The company actually got investment from another source, but she says had they not gone through the Angel Programme that money would not have been forthcoming. 'The big-picture-thinking and paperwork we got from the British chamber helped us cement interest.' She is still talking to two interested parties from the British chamber scheme.

Their new investor is a marketing expert, who will contribute both money and business skills. Wood expects to seek financing from other sources when they graduate to the next stage. 'The two from Brit Cham are still warm,' she says.

Wood says the whole process for the Angel Programme was very positive. She says it is a strict test every small business should go through and the process helps one grow up as a business person very quickly.

The advice from the experts on the panel was invaluable. 'It's too easy to start a small business. People presume it's going to be easy but in reality it's hard work for years. Say goodbye to your life ...'

 

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