CY Leung’s HK$2 billion matching fund could lay foundation for set of best practices for investors, says Silicon Valley veteran

Building up Hong Kong’s start-up ecosystem just one of the expected benefits of the latest push to lure more venture capital to city

PUBLISHED : Wednesday, 20 January, 2016, 6:34pm
UPDATED : Wednesday, 20 January, 2016, 6:36pm

A recently announced HK$2 billion matching fund for start-ups in the city is a prime opportunity to build up the local start-up ecosystem and develop a set of best practices for investors, according to entrepreneur-turned-investor Edith Yeung.

The Hong Kong native has spent 20 years in Silicon Valley and is now a partner at the 500 Mobile Collective Fund, which is based there and focuses on investments in mobile phone apps.

“That investor ecosystem is missing in Hong Kong and I think the intention of the government’s [new] fund is a good one,” Yeung said.

“It could work if they partner up with the right investors to really get that ecosystem going,” added the Stanford graduate.

“It’s not about a short-time-frame return, but rather a longer-term return.”

Hong Kong Chief Executive Leung Chun-ying announced the matching fund in his policy address last week. It will make investments in conjunction with private venture capital funds.

While there is a good supply of angel and early seed stage investment available in Hong Kong, many entrepreneurs say it is still a challenge to raise series A funding.

Total venture capital investment in Hong Kong last year reached US$324 million, up from US$139 million in 2014, according to the Hong Kong Venture Capital and Private Equity Association.

Average investment stood at US$11.2 million and US$3.7 million, respectively, it said.

But the total for last year must be taken with a pinch of salt as the inclusion of three major investments, each one worth over US$50 million, skewed the results, it added.

Yeung said she hopes the fund helps attract the right kind of investors, those who are interested in start-ups with strong, new ideas and a vision that adheres to “ good practices”, such as not demanding too much equity.

She gave the example of some investors in China who demanded stakes of to 40 per cent in the companies they were looking at. Yeung said this lowers the incentive for founders to work hard.

Silicon Valley start-ups benefit from the knowledge of founders of technology companies who go on to act as mentors and investors. This will be harder to replicate in Hong Kong as the city has a smaller number of technology companies, she said.

While budding businesspeople in the city have tech kings like Wong Kong-kat of Chinese smartphone maker Xiaomi and Ray Chan of online entertainment platform 9Gag to look up to - both men are co-founders of their respective companies - mentorship for young people is still wanting in Hong Kong.

To make the most of the new fund, start-ups should base their business models on the expectation they will expand outside Hong Kong within a year, she said, adding that choosing models which they can easily replicate overseas will likely pay dividends.

“It’s about how to make another McDonald’s, not another Yung Kee roast goose restaurant, because it’s so hard to repeat [the latter] but you can repeat McDonald’s everywhere,” she said.