Hong Kong has launched a HK$2 billion (US$256.94 million) innovation and technology venture fund, aimed at investing in and growing Hong Kong-based startup ventures and reflecting a growing ecosystem.
The Hong Kong Venture Capital & Private Equity Association (HKVCA) welcomed the announcement by Hong Kong’s chief executive, Leung Chun-Ying, at his 2016 Policy Address. This comes amidst recent growth in Hong Kong’s startup ecosystem, with Invest Hong Kong (InvestHK) disclosing in September 2015 that a poll of the startup ecosystem indicated continued growth in the volume of startups, co-work spaces and incubators operative in Hong Kong.
The InvestHK survey, which polled operators of 40 co-work space, incubator and accelerator locations in Hong Kong in August 2015, producing the fooling results: 1558 startups registered in co-work spaces (46% increase); 3721 startup employees (56% increase); and 4535 workstations (60% increase). According to InvestHK, all of these represent increases of 46 per cent, 56 per cent and 60 per cent res
Sectors that were significantly represented included info-comms technology (ICT), which accounted for 19 per cent of startups, followed by hardware – IoT, prototypes and wearables – which accounted for 14 per cent of all ventures. E-commerce and supply chain management ventures as well as professional & consultancy services each represented 10 per cent of total venture numbers.
In relation to these findings, InvestHK’s director-general of investment promotion, Dr Simon Galpin, expressed delight, saying: “The results of the survey demonstrate Hong Kong’s continued appeal to global founders as one of the fastest growing startup hubs in the world. A big part of InvestHK’s job is to assist startups and promote the startup ecosystem in Hong Kong.”
Galpin added, “We plan to do this poll more regularly such that based on the latest findings and developments, we can adjust our promotion strategy more effectively.”
HK’s startup scene
Ranked among the Top 25 startup ecosystems globally in a 2015 Startup Ecosystem Report, Hong Kong offers excellent market reach, due to its proximity to the Chinese Mainland with its large market. Combined with its history of open market and deep international trading expertise, this renders Hong Kong an attractive launchpad for startups seeking to scale globally.
In terms of performance, Hong Kong has been a rapid growth in the number of startups, thanks to growing entrepreneurship (organic growth) and the attraction of some international entrepreneurs (inorganic growth), as well as a surge in the number of co-working spaces.
Additionally, Hong Kong has a long tradition of international trade and a strong presence of expats and western-educated locals. This translates into an ability to penetrate foreign markets.
The launch of the innovation fund is meant to engage and involve institutional venture capital (VC) funds more deeply in the Hong Kong startup space, by matching them with technology startups. Through this, Hong Kong hopes to increase VC deal flow in Hong Kong and boost local innovation.
Commenting on the launch of the fund, Melissa Guzy, the chairman of the HKVCA Venture Committee, said,“The new venture fund policy is a significant step towards supporting the entrepreneurial ecosystem that is positioned to flourish over the next decade. This is a very exciting time for the Hong Kong start-up community.”
An essential part of financial systems and capital markets, venture capital is a fundamental part of the startup ecosystem, as it drive venture creation and expansion. Global Compass noted that in the funding dimension, Hong Kong has significantly lower access to venture investments than the Top 10 startup ecosystems.
While there was no scarcity of capital, high-net worth individuals (HNIs) tended towards favouring traditional investments and lacked technology experience, though there was growing interest.
The launch of the innovation fund synchronises with Global Compass predicting a continued increase in the quantity and quality of startup ventures and successful exits. This could rapidly turn the abundance of local capital and financial institutions into a venture funding strength. The status of Hong Kong as an IPO capital is also a major strength, providing a proven exit vehicle for entrepreneurs via the local bourse.
Deal flow in Hong Kong continues to be robust, with the first 10 months of 2015 seeing the completion of 28 institutionalised venture deals. The size of deals also tripled when compared to 2014. The establishment of this innovation and technology venture fund will also encourage institutional venture capital firms to increase their systematic sourcing effort for investments in entrepreneurial ventures in Hong Kong.
Denis Tse, executive director of the HKVCA, added: “We hope the matching fund would offer local start-up with better access to institutional-grade venture capital that can lend operational and product development experience and exert business-building rigor onto local entrepreneurs.”