Could red tape stifle interest in Hong Kong government’s US$255 million fund for tech start-ups?
Venture capital fund chosen as partners in the Innovation and Technology Venture Fund say Hong Kong is fertile ground for investments, but they worry about the paperwork
Venture capitalists chosen to take part in the Hong Kong government’s HK$2 billion (US$254.9 million) Innovation and Technology Venture Fund (ITVF) have expressed concerns that too much paperwork and due diligence could increase their costs and put off entrepreneurs.
Earlier this week, the Innovation and Technology Commission announced that it had chosen five venture capital funds out of 14 applications received to be co-investment partners for the scheme, which will see the government contributing capital alongside the venture capital firms to a targeted start-up at a matching ratio of 1-2.
The five partners are Hong Kong X-Tech Startup Platform, whose anchor investor and founder includes Sequoia Capital China’s managing partner Neil Shen; Mindworks Ventures; Beyond Ventures; Hendale Fund and BVCF, which is the only fund among the five that has a dedicated biopharmaceuticals and health care focus.
While they welcomed the extra money from the government, they worried that the amount of paper work needed when referring deals to the ITVF – which acts as a passive investor with the right of first refusal – as well as a requirement to perform due diligence for transactions exceeding HK$4 million, a threshold they deem too low, could make the scheme less attractive.
“Venture capital investment is about being able to identify the right start-up and deploy your capital ahead of your competitors,” said Lap Man, managing partner of Beyond Ventures. “We hope that the government could have more trust in the co-investment partner’s investment decisions,” he said.
Beyond Ventures, backed by mainland Chinese private equity investor Hony Capital, runs a US$80 million fund. Its portfolio includes Hong Kong-based ePropulsion Innovation, which makes underwater drones.
Chen Guanhua, one of the three founders of Hong Kong X-Tech Startup Platform, said he sees the additional government funding of up to HK$400 million per partner and HK$50 million per start-up helping his business at his platform could potentially broaden out to more investment fields.
“There are potential unicorns in Hong Kong that are involved in the ‘deep technology’ sectors. These include artificial intelligence, big data, biotechnology, microelectronics,” he said.
But he echoed concerns about red tape in the government scheme.
“Over the longer term, we will still look for private sector capital, as private sector investors tend to respond quickly,” Chen said.
Hong Kong X-Tech Startup Platform has invested in 20 Hong Kong start-ups in areas including fintech, design, robotics and energy.
David Chang, managing partner of Mindworks Ventures, said the ITVF’s focus on funding stage A and B start-ups is in alignment with his investment strategy.
“We see attractive investment opportunities in artificial intelligence and data analytics in Hong Kong. With more available capital from the government’s funding, our pace of making investment in Hong Kong could accelerate,” he said. The company currently manages three funds with US$300 million in total assets under management and a portfolio spanning Greater China and Southeast Asia.