Hong Kong braces for start-up influx as open border, SFC’s new virtual asset rules aim to turn city into a hub
- China’s reopening has given ‘new optimism and impetus’ to deal-making, says a Baker McKenzie senior executive
- New rules on virtual assets and listings by pre-revenue companies will strengthen Hong Kong as a start-up hub, say MindWorks venture capitalist
More start-ups from mainland China and other parts of Asia will come to Hong Kong in the Year of the Rabbit to raise funds and develop their businesses, thanks to the reopened border and regulatory reforms involving virtual assets and new listings, according to industry watchers.
“We know there are a number of start-ups in the mainland that have shown interest in setting up their business in Hong Kong,” said David Chang, founder and CEO of start-up focused venture-capital company MindWorks. “Hong Kong is the ideal place for start-ups to set up, as it is an international financial centre and the gateway to the Greater Bay Area and other parts of Asia.”
The city has a unique position that other markets, such as Singapore, cannot compete with, Chang said.
“In the future, the start-ups who are interested in virtual assets will come to Hong Kong to apply for licenses under the SFC’s new regime,” Chang said. “This will potentially turn Hong Kong into a virtual asset hub.”
Chang, whose father Lister is a venture capitalist in Silicon Valley, founded MindWorks in 2013. It has 60 per cent of its investments in start-ups in mainland China and 40 per cent in Southeast Asia.
MindWorks was one of the first institutional investors in the city that FTX approached for its Series A funding round in February 2021, though MindWorks rejected the offer. Chang said the main reason was the lack of a clear framework for digital assets in Hong Kong at the time.
“Now, with a clearer regulation, we feel more comfortable to invest into these opportunities,” he said.
Mainland Chinese make up 14 per cent of all Hong Kong arrivals since border reopening
Meanwhile, the reopened border with mainland China is already increasing start-up activity.
“China’s reopening has certainly given new optimism and impetus to deal-making as cross-border business travel becomes easier,” said Zhang Hong, head of China private equity at Baker McKenzie FenXun, the joint operation platform of international law firm Baker McKenzie in China. “We have seen more active discussions on potential investment opportunities.”
Immigration Department figures showed that Hong Kong had a total of 46,343 mainland visitors across the land border in the first seven days after the border reopened on January 8, a 125 per cent increase over the previous week.
Zhang said deal activity is likely to start slowly but should pick up in the latter half of the year.
“Insofar as investment is concerned, we have been seeing a significant amount of funding going to companies that align with Chinese government policy areas,” she said.
Hong Kong retail investors to only have access to ‘highly liquid’ virtual assets
Even during the pandemic Hong Kong recorded growth in start-up activity despite the city’s tough Covid-19 restrictions. Hong Kong was home to 3,985 start-ups in 2022, a 25 per cent increase over 3,184 in 2019, according to a survey by InvestHK, the government agency that promotes the city as an international financial centre.
These start-ups employed a total of 14,932 people in 2022, a 20 per cent increase from 12,478 in 2019.
Chang said MindWorks continued to invest in mainland and regional start-ups throughout the pandemic, and he expects more deals this year.
“We are investing in Asia-based companies that play a significant role in the global cross-border infrastructure layer, such as logistics, manufacturing and fintech,” he said.
