Bankers and fund managers are urging Hong Kong's government and stock exchange to introduce new platforms to help technology firms raise funds, saying the Growth Enterprise Market (GEM) has failed in its mission to become the city's version of Nasdaq. They say Hong Kong should allow crowdfunding or a new board with more relaxed listing requirements for newly set-up technology firms looking to raise funds. In his budget speech in February, Financial Secretary John Tsang Chun-wah set a goal of encouraging more start-ups by information technology companies and other innovative firms. Ricky Tsang, managing director of CaSO (HK) Engineering, a local company which sells environmentally friendly construction materials, wants the government to do more to help technology or innovative firms set up, because the stock market has not been helpful when they have sought to raise funds. "The GEM has set an entry level that is too high, while the main board threshold is even higher," he said. "The stock market in Hong Kong only allows proven, successful technology firms to raise funds to expand their business further, rather than acting as a platform for newly set-up firms to raise money." The stock exchange introduced the GEM in 1999 for new firms that had yet to make a profit, while the main board continued to require candidates to have a combined profit of at least HK$50 million in the three years before listing. But 15 years on, the GEM has been a failure. The 19 new listings on the GEM last year raised a total of HK$2.06 billion, just 0.9 per cent of the HK$225.68 billion raised by 103 flotations on the main board. Only 204 firms are listed on the GEM, compared with 1,548 on the main board. Joseph Tong Tang, executive director of Sun Hung Kai Financial, said GEM board listing requirements could be too high for many technology firms. Companies which want to list on the GEM need to have two years of operating history and a positive cash flow generated from operating activities of at least HK$20 million in aggregate for the two financial years immediately preceding their application for listing. They also need to have a minimum market cap of HK$100 million. "These are not easy targets for new start-up companies, especially for technology companies," he said. Tong said Hong Kong Exchanges and Clearing (HKEx) should consider establishing another over-the-counter (OTC) board which would adopt a different set of IPO regulations, such as using a gross revenues benchmark instead of cash flow. "China also has a 'New Third Board' which basically has no earnings requirement. The board commenced last year and it is now very popular among issuers and investors in China," he said. Tong also supports recent calls by some lawmakers for the Securities and Futures Commission to relax crowdfunding rules to help companies raise funds through such platforms. The United States and Britain have modified their laws recently to allow online crowdfunding, a modern version of pooled investment that lets hundreds of people come together to support newly established companies seeking to develop new products or services. But crowdfunding is banned in Hong Kong without SFC authorisation, which the commission has yet to give. At a Legislative Council meeting last month, some lawmakers urged the SFC to relax the crowdfunding regulation to help technology firms raise funds. Tong said he strongly supported such calls. "I think as long as the investor has agreed to take the risks and acknowledge it in a document, he should be allowed to conduct the investment," he said. Secretary for Financial Services and the Treasury Chan Ka-keung said a steering group to study how to develop Hong Kong into a technology financing hub would be set up soon and it would also study issues related to crowdfunding. "We have been monitoring the development of crowdfunding activities in Hong Kong," Chan said. "However, we are also aware of the potential risks involved in crowdfunding activities." Chan said the International Organisation of Securities Commissions had released a study in February last year which showed there was a 50 per cent chance a crowdfunded start-up would default in its first five years of existence. Hong Kong Investment Fund Association chairman Bruno Lee said the city's fund houses were willing to invest in smaller technology firms but many would not be interested in newly set-up firms. Lee said the GEM could be a good platform for established technology firms to raise funds for further expansion. "The GEM could not work more like Nasdaq, because the US market is different from Hong Kong," he said. "In the US, technology firms also grow to a certain size before they list on Nasdaq, but then the US has many funds or other fundraising measures for newly set-up technology firms to get the first bucket of gold to develop the first steps of their business. "In Hong Kong, however, we do not have many incubators to help technology companies set up from scratch. If the government really wants Hong Kong to become a technology hub, it would need to directly finance these companies to set up before they could list on the GEM or the main board for further expansion." Mike Wong, chief executive of the Chamber of Listed Companies of Hong Kong, said the GEM could reposition itself as a listing venue for new technology firms by allowing firms to list with dual-share shareholding structures. The stock exchange lost the listing of mainland e-commerce giant Alibaba to the US in September after it declined to give it an exemption for a structure that would have allowed its founders and key executives to nominate a majority of the board. The stock exchange is consulting the market on whether the city should amend its ban on dual-share structures. The SFC listed key conditions for any change last month, including added protection for investors. "The GEM is now considered just a stepping stone for those firms which have not yet qualified to list on the main board. This is not that attractive," Wong said. "The dual-share structure consultation would be a good time to consult the market on repositioning the GEM as a special listing venue for high-growth technology firms to list with special shareholding structures."