Heroes wanted: Hong Kong mentality holds back start-ups

The city's start-up scene has exploded in the past few years but tech entrepreneurs are hampered by the lack of a risk-taking culture among young local graduates

PUBLISHED : Monday, 24 August, 2015, 1:09pm
UPDATED : Tuesday, 25 August, 2015, 9:22am

The excitement generated at July's RISE conference in Hong Kong mirrored the buzz rolling across the tech scene in Asia, with venture capital database CB Insights reporting explosive growth in the region over the past three quarters and 25 mega-round financings (more than US$100 million) in the past quarter.

In Hong Kong, too, this is undeniably an exciting time for its burgeoning start-up scene.

"Compared to, say, three years ago, now is a great time to do a start-up as many people are in the scene," says Casey Lau, co-founder and executive director of the StartupsHK community. "[The scene] has grown exponentially and today there are events, talks and mixers happening almost every night on the Hong Kong side, [in] Kowloon and [the] New Territories."

But there's a long way to go to catch up with Silicon Valley in scale of funding and ability to attract talent, even as Hong Kong start-ups face tough competition in the region from Beijing, Shanghai and Singapore.

The main challenges for Hong Kong start-ups, as elsewhere, relate to their ability to sell their project or vision to investors and incubators; the most significant, though, is recruiting a still-sceptical generation of new local graduates. Traditionally, the key stumbling block of many start-ups trying to get off the ground has been funding, or more accurately, the lack of it. But with increasing investment interest in this business model, Hong Kong start-ups seem to be enjoying an easier time getting funding, at least at first.

Easyship, a start-up that provides shipping and tracking services, found initial backing through old-fashioned networking, tapping the founder's connections. Co-founder Augustin Ceyrac says he and his partners worked at the same e-commerce company before leaving to launch their own venture, and were able to reach out for funding and business from former clients.

Others have looked abroad or online for investors and support. Shopline, a service which helps clients set up online retail operations, launched in 2014 and has since created 35,000 shopping websites. CEO Raymond Yip says being able to take part in the sought-after 500 Startups accelerator in the US had given Shopline an enormous boost.

"I think we were only the second Hong Kong team to make it into the programme, so it really validated our idea and our business model," Yip says. "The brand recognition of 500 Startups helped us get publicity and kick-started our fundraising."

Raising seed funding was hard at first, but the team's networking helped it gain traction. Shopline ended its seed round with US$1.2 million and the team has grown from three people to 22, working in Hong Kong and Taipei.

In contrast, Nanoleaf turned to crowdfunding site Kickstarter, to raise initial financing to produce what it claims to be the world's most energy-efficient light bulb. The company has since secured investment from the likes of Horizon Ventures, Li Ka-shing's venture fund.

However, securing initial funding can only take a start-up so far: there's no guarantee this will lead to further investment capital.

Many local start-ups are encountering what is known as Series A crunch, when they have trouble attracting bigger investors after a successful seed round, says Ray Chan of 9Gag, another 500 Startups alumnus.

Entrepreneur Deepak Madnani, who founded the start-up academy and co-working space PaperclipHK, acknowledges that growth of these fledgling operations is often hampered by the lack of larger capital inputs.

"One way to help is to try and get the government to look into this area and see how it can encourage those investors who are focused on making companies grow bigger to come to HK," he says.

Beyond financing, many start-ups are discovering that the real barrier to their ability to get off the ground, let alone scale up and mature, is recruiting the brightest young talent from Hong Kong universities, especially those with coding skills.

"I haven't talked to a single Hong Kong tech company that hasn't had this problem," says Jerome Tam of Rush Hour Media, a website-creating service. "It's impossible to find web developers, especially local ones."

Others agree, which suggests that the difficulty in hiring young graduates stems from a systemic scepticism about start-ups in Hong Kong rather than from a lack of talent or financing. At the heart of this issue is that many young Hongkongers fear taking risks and are obsessed with financial security.

"If you have an option of telling your family and relatives that you are working for HSBC in Central or working for a website in Tsuen Wan that posts funny photos of cats, I'm pretty sure you have your eye on the life game at the bank," Lau says.

Hong Kong families tend to channel young people into the safest option; and the city's exorbitant cost of living is another major push factor.

Almost every tech entrepreneur complains of similar problems. Web developers either want to join investment banks or big tech companies, says AfterShip's founder Andrew Chan. Many start-ups offer wages similar to larger companies but are type-cast as low-paying, inferior career choices, he adds.

Ray Chan, one of the most recognisable faces in the Hong Kong start-up scene, believes that the reason for this phenomenon is two-fold.

"Our biggest challenge is the societal values of Hong Kong. People here are more materialistic and focus more on the short term," he says.

For example, developers in Hong Kong generally prefer to be rewarded in salaries when they work in start-ups, while in Silicon Valley, the best and most ambitious developers would rather take some equity. The dream is to have stock options turn into a windfall when the company takes off or goes public.

Hong Kong developers' choices are telling, as it shows they think less about, or are less confident of, the company's future. "The main difference is not the talent, it's the mentality," Chan says.

The city lacks a start-up "hero" that excites and inspires young people, says 9Gag founder Ray Chan, citing tech giants Google and Apple, which have shown that working in start-ups can be hugely successful careers.

"What we need in our startup ecosystem is a hero - a start-up that can make IPO. Then people will know that they can build a career in entrepreneurship."

It's hard to spot such potential stars now, but Lau, Madnani and others are working to amp up the start-up ecosystem on the ground.

Lau and his co-founders established StartupsHK in 2009, when the notion of start-ups was barely known in Hong Kong, and has since become a driving force in connecting entrepreneurs and starting conversations, bringing together more than 10,000 companies.

"I like to think we helped start the networking in Hong Kong and give start-ups a place to hang out and network in the city's first co-workspace," Lau says.

What we need in our startup ecosystem is a hero - a start-up that can make IPO. Then people will know that they can build a career in entrepreneurship.
Ray Chan

StartupsHK continues to host conferences, networking events and workspaces to help entrepreneurs share knowledge and drive the awareness of start-ups.

Madnani's PaperclipHK is similarly geared towards improving the startup ecosystem, organising workshops and talks for budding entrepreneurs while offering co-working space. The venture is partly inspired by the startup friendly culture in Silicon Valley.

"The Valley's support system is geared towards openness and sharing - start-up friendliness is a given," he says. "In Hong Kong, the quality of support is way behind, but the 'friendliness' is opening up."

Others have been doing their part to bolster the start-up community. Andrew Chan, who is part of the StartupsHK network and participates in talks and events, says these efforts promote the Hong Kong start-up brand and can help attract high-quality young tech talent.

Yip has been even more direct - he gives recruitment talks at Chinese University and Hong Kong University, which he says have been increasingly popular.

These efforts have brought optimism about the future, despite the daunting challenges start-ups currently face. "We have seen in the recent past that the young people do want to see a new future, so I have a feeling that they will find a way to bridge this gap," Lau says.

As the city's bright young minds are being called on to break out of the mould, Madnani and many fellow entrepreneurs are mulling the question: "What can we do to harness these creative minds and support them?"