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A body established to provide start-up or expansion funds for Internet businesses has made its first disbursements to two companies associated with its main partner.

 Hongkong.com Studios, a limited partnership, has raised eyebrows in the information technology community because of the direct links two of its first three beneficiaries have to China Internet Corp (CIC), the driver and funding partner of Hongkong.com Studios.

 Last week, Hongkong.com Studios announced its first disbursement of funds, amounting to about US$5 million, to Web design firm The Web Connection, portal service Outblaze, and Chinese-language search-engine Goyoyo.

 CIC is a shareholder of The Web Connection, which occupies CIC offices. Outblaze was co-founded by Anthony Yip, son of CIC executive vice-chairman Peter Yip.

 Hongkong.com Studios has about $10 million in funds from several private SAR partners that is intended to help companies with Web-based technologies and businesses.

 CIC, whose main shareholders include the Xinhua news agency, New World Infrastructure, Sun Microsystems and Bay Networks, runs the China Wide Web, an Internet service provider.

 One industry observer praised the use of private funds to aid Internet businesses, but said: 'I do feel slightly concerned, because it sounds as if it is all controlled by CIC.'  Hongkong.com Studios said companies chosen for funding were evaluated by an investment committee that performed due diligence and competitive analysis. Between six and 10 would receive funding this year, CIC said.

  Goyoyo intends to use its funding for product development.

 Outblaze has an instant portal service to Web sites that want to offer free e-mail, message boards, mailing lists and on-line chat services.

 Co-founded by American-Chinese Yat Siu, Outblaze hopes Hongkong.com Studios will help it learn business planning and assist it to recruit senior management.

 The Web Connection plans to use its funding to help it expand into Taiwan, Japan and Shanghai.

 Chief executive and founder Peter Hamilton said Hongkong.com Studios 'approached us about potential investment'.

 The company, which was 'breaking even' and 'a profitable business', had already initiated expansion plans at that time.

 The funding provided an opportunity for the company to build, Mr Hamilton said.

 Hongkong.com Studios chief investment officer Anson Wang defended the decision to fund The Web Connection.

 'Our mandate is 100 per cent Web investment. We're providing start-up [capital] and to those in need of second-generation funding,' he said. 'It's not just funding. We have to give them guidance, distribution and networking.'  Hongkong.com Studios said it was different from venture-capital firms because it focused on Internet technology and promised to introduce distribution and technology partners and advise on business plans, deals and recruitment.

 It said potential fund beneficiaries fell into three basic categories: mainland professors developing innovative Web technologies, SAR expatriates interested in developing Hong Kong's Internet community, and overseas Chinese who wanted to introduce technology.

 'I could not obtain any venture capital. It was very difficult to break through,' Mr Siu, of Outblaze, said.

 He had approached the Hong Kong Industrial Technology Centre, which provides discount office space and marketing assistance and funding to start-ups, but it was 'not quite [right] for the kind of Internet start-up [Outblaze is]'.

 Mr Siu previously founded Lexicor and Radiance Software - a maker of 3-D software later sold to Silicon Graphics - and Net Graffiti, a free mailing list provider.

SELF-HELP Three companies share US$5 million funding Two firms, The Web Connection and Outblaze, linked to China Internet Concern about CIC's control of disbursements 



Start-up funding group keeps aid close to home