Failure should be an option, even an expectation for those who enter into start-ups

While the stock exchange has proposed a new market geared towards start-ups, it appears young entrepreneurs no longer need to worry about funding sources to support their business. However, they now need to think more about what they do when they fail.

Many studies show the failure rate among tech start-ups is as high as 70 per cent.

For this reason, Hong Kong Exchanges and Clearing last month proposed a new board that will include two markets. The first is geared towards younger start-ups, considered high risk ventures which would be suitable only for professional investors. The second market is for bigger technology companies, with dual class share structures, which meet all the profit requirements of the main board. This premium market would be open to all investors.

The proposal, up for market consultation until August, may result in the launch of the third board as early as next year.

This would be good news for Hong Kong’s start-up community, which saw a 24 per cent jump in the number of young companies last year, according to government figures.

InvestHK said the number of start-ups rose from 1,558 in 2015 to 1,926 in 2016, with local ownership increasing from 50 per cent to 62 per cent.

The next step for government is to establish a contingency plan should many of these start-ups fail. Should there be funds available to set up another business? Is there a pathway that the employees of defunct start-ups could join other big technology companies?

Unlike the US, where aspiring entrepreneurs can usually find work at companies like Alphabet or Apple, Hong Kong has few of the major tech brands that can absorb talent.

The government may need to invest more to foster employment opportunities in the area.

According to a report of accounting firm EY last year which tracked leading fintech markets, Hong Kong lagged well behind in terms of market size and employment.

The size of Hong Kong’s fintech economy is 600 million sterling pounds (US$772.75 million), representing only about a tenth of Britain’s fintech community, or about 12 per cent of California’s.

In terms of employment, about 8,000 are on fintech payrolls in Hong Kong, compared with 61,000 in Britain, 74,000 in California and 57,000 in New York.

Fintech is one pathway for Hong Kong to better prepare for the important industries of the future.

How best to help our young people who may experience hardship and occasionally even business failure in their journey to build a successful foothold in this important new industry is something our new government needs to think about.