About three months ago Matt Li Chun-shing, 27, and four of his colleagues left Hong Kong for a visit to Beijing, checking out mainland market opportunities for their new business Branch8. They had long before received US$120,000 from Y Combinator, the Silicon Valley start-up fund that was an early investor in ventures like Dropbox and Airbnb. Y Combinator also invested in Hong Kong start-ups 9GAG, a social media website dedicated to humorous content, and cloud-based mobile collaboration tool TeamNote. Li was surprised by the atmosphere in the capital, saying it was comparable to Silicon Valley in the US. The firm is now convinced a large part of its future is on the mainland. Making a leap into the mainland is a tough task for Hong Kong start-ups, but the road is even tougher in their hometown where the fund opportunities and market are much smaller. By launching their ideas onto a bigger stage with a huge number of users and better access to funds, young Hong Kong entrepreneurs have a better chance of making their mark. Branch8 is a website that helps merchants list and manage products across various e-commerce marketplaces such as Amazon and Lazada. Li said there were more than 10 million merchants on mainland e-commerce sites like Taobao and JD.com but Branch8 was focused on quality vendors who wanted to use its platform to expand overseas. “It’s so natural for us to come to Beijing, because the market is here on the mainland, and it is so big,” Li said. “But our limitation is that we don’t understand the market well, so we have to move closer to our users.” READ MORE: China’s start-up entrepreneurs need to lose the spend, spend, spend mentality as funding gets tight, say experts During their stay in Beijing, Branch8’s team of five used Kr Space, the incubator unit of the mainland’s leading start-up service platform 36kr.com, in Beijing’s Zhongguancun district, as their first outpost. “Kr Space houses many outstanding start-ups. I was so surprised that they were so willing to share their experience, and we can reach out to more mainland investors,” said Li, sitting in one of the incubator’s meeting rooms. Li said the team had since moved back to Hong Kong but was considering setting up an office in Shenzhen’s Qianhai district which offered incentives for innovative start-ups. Branch8 started its website in Hong Kong in April last year and was soon invited by Y Combinator to spend three months in Silicon Valley. From that experience, Li said it was tougher to get funding in Hong Kong where the emphasis was on returns. Mainland and US investors were more interested in the team, ideas and technology behind a project, he said. It’s so natural for us to come to Beijing, because the market is here on the mainland, and it is so big Matt Li Chun-shing, Branch8 He also said it could be more difficult to find incubators like Kr Space and Y Combinator in Hong Kong. The team was applying for financial assistance from the Hong Kong government-backed Cyberport incubation programme but the threshold was high for a start-up, requiring a complex proposal and long-term plan, Li said. The Hong Kong government has stepped up efforts to encourage innovation and entrepreneurship in recent years. In January’s policy address, Chief Executive Leung Chun-ying said the authorities would set up a HK$2 billion fund to boost investment in innovation and technology. But Tim Lee Ying-ho, co-founder of mobile payment start-up QFPay, said Hong Kong had yet to develop an entrepreneurial ecosystem with a market, a large number of users and access to funding and technology. “The government’s support has come along late and is likely to offer little help, but it’s better late than never,” Lee said. QFPay, which makes a smartphone gadget that lets retailers take e-payments from consumers’ mobile devices, was established in 2012, and claims to have more than one million merchants using its system. It processed 20 billion yuan (HK$24 billion) in transactions last year, it said. “The big thing that’s lacking in Hong Kong is a market,” Lee said. He said internet start-ups like QFPay needed a large number of users and a big market to attract the interest of investors. “Angel investors are running a business – not a non-profit group, so they expect a chance to earn 100 million yuan from one million yuan’s worth of investment,” Lee said. “This is very hard to achieve in Hong Kong because the market here is too small.” Although investors had become more cautious and liquidity had become tighter for start-ups, it was still possible to get funding if you had a good idea as the market potential was huge, he said. QFPay, which completed its series B financing and raised 100 million yuan in 2014, is planning to bring its mobile payment to Hong Kong to enable merchants in the city to accept mobile payments through the mainland’s dominant mobile payment providers WePay and Alipay. The company has offered its payment service in Hong Kong’s 759 Store chain since February. “Even we are expanding our coverage to Hong Kong,” Lee said. “But our target users are still mainland visitors instead of Hong Kong users, considering the demand is limited.” Hong Kong internet finance start-up WeLab is also looking north. It has set its sights on the mainland’s micro loans business, targeting the credit needs of the nation’s youth and rural residents. WeLab founder and chief executive Simon Loong Pui-chi, said Hong Kong’s entrepreneurial atmosphere had grown in recent years but that did not mean start-ups could survive. “The size of the population is an important element for internet start-ups. As we do not have good profit margins we have to achieve scale,” Loong said. The size of the population is an important element for internet start-ups. As we do not have good profit margins we have to achieve scale Simon Loong Pui-chi, WebLab “Hong Kong doesn’t have that scale and so start-ups need to find another market.” WeLab, which was established in 2013 and made inroads in the mainland market in 2014, added a few thousand users each month in Hong Kong, but on the mainland it was able to gain between 300,000 and 400,000 new users every month, Loong said. “It took us 2½ years to amass 300,000 users in Hong Kong, but in just over a year we got 2.3 million users on the mainland, so you can see the difference,” he said. Loong said establishing WeLab in Hong Kong was a painful experience because there was little support. “In Hong Kong, there are no really successful tech start-ups like BAT, Xiaomi and JD.com, so many people still don’t believe in entrepreneurship,” the former Standard Chartered banker said, using the shorthand for Baidu, Alibaba and Tencent. Big enterprises in Hong Kong were not keen to work with start-ups, but large mainland companies were more open, he said. WeLab was working with mainland banks to source funds for the company’s loan business. It raised one billion yuan in a series B financing, but Loong said it was hard for Hong Kong start-ups to find angel investment as the rewards might not be too attractive. READ MORE: Pure and simple: 3W Coffee founder’s secret to start-up success in China Xu Dandan, founder and chairman of the 3W Entrepreneurship Service Platform, which operates the mainland’s first crowdfunded start-up cafe 3W Coffee, said angel investors were more active on the mainland because that was where there were plenty of opportunities . “Investors can look for lucrative start-up projects on the mainland, but there are fewer opportunities in Hong Kong because of the limited number of users means the market is not big enough ,” Xu said. But while the mainland market offered good opportunities for start-ups, the competition was also very fierce, he said. “The business environment between the mainland and Hong Kong is so different,” Xu said. “Start-ups from Hong Kong might consider finding a mainland partner so as to better understand the market and the culture.” But he said Hongkongers had an advantage when it came to understanding global trends, in particular, start-ups in California’s Silicon Valley. “They can bring some ideas from overseas to the mainland where users and investors are based,” Xu said. Kr Space chief executive John Tian Zhiyong agreed that Hong Kong start-ups were often held back by a lack of understanding about the mainland market . “Also, many Hong Kong teams have limited foresight, focusing merely on their local market,” Tian said. “We hope that Kr Space can be a platform that helps them integrate into the mainland’s business environment and get access to resources here.” He advised Hong Kong start-ups to grow their presence in the mainland market, while embracing a global vision. “Hong Kong’s entrepreneurs can to connect the mainland’s resources and market to the world. This will require them to study the mainland market continuously,” Tian said.