The Paradox of Angel Investment in Hong Kong

Hong Kong may be one of the wealthiest cities in Asia, but angel investing is still at an early stage of development. However, if it is to encourage vibrant entrepreneurship, angel investment is a key part of the ecosystem.

Brigitte Baumann, who has been building angel investment communities in Europe for over a decade and is past president of the European Business Angel Network (EBAN), said that High Net Worth individuals in Hong Kong have many attractive options for investments, such as real estate and equity markets. But angel investment involves long time horizons, uncertain returns and a degree of personal involvement that may not appeal to the purely returns-driven investor.

“It is hard being an angel,” said Baumann, who visited Hong Kong last month for the Asian Business Angel Forum, held on May 20-22. “You have to know who you can trust, and you may have to find co-investors. I've seen family businesses in Asia that felt they had to invest in their cousins' business instead of someone outside the family. Part of it is an awareness issue [hindering angel investment]. It is also important to have a trusted, well developed ecosystem.”

Angel investors are wealthy individuals who invest in early stage start-ups, in exchange for equity or convertible debt, and help them grow to a point where the start-ups are ready to receive larger funding from venture capital. Angels are typically involved in mentoring the start-up founders or providing other practical support, such as recruitment or introductions to other potential investors. Angels may invest as individuals or in groups, where they pool  their capital and share their expertise and due diligence.

Nelson Gray, an angel investor with over 30 years’ experience who is also an adviser to the World Bank and the European Commission on how to build co-investment funds, believes that Hong Kong's small local market forces start-ups to think about the global market, and its tightly connected business community is conducive to a strong entrepreneurial community.

Gray draws an unlikely analogy between Scotland and Hong Kong in their angel investor communities. Scotland has 8 per cent of the UK population, but 20 per cent of its business angel investment.