Dearth of early-stage venture capital could hurt Hong Kong start-ups, say entrepreneurs
The number of start-ups grew by 81 per cent between 2014-16 but series A and B funding, or US$1 million-plus in financing, yet to catch up
Increasing support from corporate-sponsored incubation programmes and government investment has nurtured a growing number of start-ups in Hong Kong, but many say the real challenge for entrepreneurs is a dearth of early-stage risk capital from venture capital investors.
Hong Kong venture capital investors said they have witnessed a better start-up ecosystem in the city over the three years to 2016, with the number of start-ups growing by 81 per cent from 1,065 in 2014 to 1,926 in 2016, according to a survey conducted by InvestHK for the Hong Kong government. At 5,229, they also employed more than twice as many people in 2016.
Round A and B financing is very high-risk capital, and this is where Hong Kong fails
Carman Chan, founder of angel fund investor Click Ventures, which manages a US$50 million seed fund and a US$100 million follow-on fund, said the growing start-up ecosystem in Hong Kong meant that over the past four years, her fund had doubled its investment size per seed stage financing, which today ranges from US$100,000 to US$500,000.
She pointed out that with China being the second-biggest venture capital market after the United States in terms of attracting investment deal flows, drawing about US$65 billion last year, the mainland might continue to draw attention from leading venture capital funds.
“Yet, the overall pool of money chasing investment opportunities has been growing bigger, so if you have good projects which demonstrate they have a wide, international addressable market, you could still attract funding,” said Chan.
Companies such as AIA, Accenture and DBS are increasingly sponsoring various incubation and acceleration programmes that provide co-working space, mentorship, networking opportunities and investor introduction and tours to start-ups. DBS and Accenture have programmes focusing on nurturing financial technology start-ups. Meanwhile, under the government’s Cyberport incubation programme, early-stage companies that focus on digital technology can apply for up to HK$330,000 (US$42,066.67) in financial help.