Hong Kong’s Startup Ecosystem Is Thriving — But This Is How It Becomes A Global Hub
My very first investment into a startup company was back in 2010. Xxx had just gone public, Facebook and Twitter were both on fire and approaching late stage pre-IPO valuations and I just had to get involved. Being based in Hong Kong the first place I naturally looked to quench my startup thirst was locally. Unfortunately the ecosystem in Hong Kong was all but non-existent at the time. The government was desperately trying to grow a very nascent environment through InvestHK and Cyberport but every vertical remained extremely siloed. I wasted no time going straight to Silicon Valley to begin my startup education, writing off Hong Kong in the process all together.
Fast forward seven years to present day and any newcomer to the city would be shocked to hear that Hong Kong ever lacked a startup scene to begin with. The community is enormous now with hundreds of supporters all over the city working together. The entrepreneurial buzz and excitement felt today is palpable. Not a day goes by where I don’t receive some sort of invitation email to a startup event held in the city. This is an exciting time for Hong Kong.
Let’s run through the four main components of the Hong Kong ecosystem. (Note: this is a non-comprehensive broad survey from a purely agnostic point of view):
The Talent (Startup Founders, Entrepreneurs, Side Hustlers)
According to InvestHK’s latest survey, as of 2016 there were nearly 2,000 startups in Hong Kong employing over 5,000 startup employees (that’s up 24% from the previous year ). What I found most intriguing from this survey was the fact that the largest percentage of foreign startup founders actually came from the US at 20%, followed by UK at 13% and China at 11%. Why am I so intrigued by this? One of the biggest gripes of the ecosystem in the early days was retention of talent. Most of the talented founders who started their company in Hong Kong would eventually leave to go to Silicon Valley (or other larger hubs) due the fact that the infrastructure and funding environment locally could not handle their company’s growth. When I see foreign startup founders and entrepreneurs actually coming in to Hong Kong vs. heading straight to Silicon Valley, that gives me hope.
The Money (VCs, Family Offices, HNWI, Angel Investors)
The Hong Kong funding environment used to be dominated by the large property developer family office foundations such as Horizons Ventures and Sun Hung Kai Financial. Now, this once tightly held oligopoly is being superseded by a fresh new batch of “rising star” VC firms including Fresco Capital, Mindworks Ventures, Nest and Vectr Ventures. Also throwing their hat in the ring are the investing arms of some of the large Chinese corporates such as Alibaba’s Entrepreneurship Fund, which has made waves recently by actively investing in startups locally. Finally, we’ve seen a shift in the risk appetite of the 5 million high net worth individuals (HNWI) in Asia who now are more open to supporting startups.
The Infrastructure (Co-working spaces, Accelerators, Innovation Labs)
There are currently over 50 co-working spaces, accelerators, incubators and innovation labs in Hong Kong. Back in the day, there was only Cyberport and a few sterile serviced offices that could even be considered what the term “co-working space” means today. This quickly changed in 2012 when two distinct co-working spaces officially launched in the city, CoCoon and The Hive. The Hive impressed me as it was very much modeled after many of the co-working spaces I found in Silicon Valley which included high end design, open concept work stations and of course, free coffee. Today there are dozens of co-working spaces available ranging from the smaller home grown spaces such as wHub, Paperclip, Metta and Garage Society all the way up to the household global operators such as WeWork. Joining the party are a number of accelerator programs and corporate innovation programs such as Betatron, Ablaze (media by New Media Group), The Cage (fashion/retail innovation by The Lane Crawford Group), Brinc (hardware), as well as FinTech Innovation Lab (by Accenture), KPMG, Swire’s Blueprint and DBS bank’s accelerator. Finally, there also exists a wealth of government assisted programs including Cyberport Incubation, HK Design Center Incubation program, Science Park Incu-App, Incu-Bio and Incu-Tech Programs. I’ve even heard that there is a cooking co-work space now in Hong Kong!
The Support (Government/Academia/Other Organizations)
Standing as the flagpost of all this activity is InvestHK, a department of the local Hong Kong Government. With a firm mandate to facilitate inbound foreign direct investment and offer services to companies who want to set up or grow their business locally, the team provides a plethora of support and has done so since the early days of the ecosystem. In 2013 InvestHK launched its StartmeupHK initiative to focus specifically on the startup community in Hong Kong. The team there wasted no time in launching their flagship annual Startmeup Festival in 2016 which is now one of the premier startup events in the entire world. (2016 featured Elon Musk) Lastly there are a number of other organizations such as Startup Grind, General Assembly, StartupsHK and investor networks such as the Business Angel Program, HK Angel Investment Network, HKVCA, TiE Hong Kong that are easy to join and accessible.
Hong Kong’s Strengths
The history of Hong Kong tells us that from even before the British colonization of the island, one Hong Kong’s greatest strengths has been its proximity. Hong Kong’s has always served as a gateway to Mainland China. What is particularly exciting is the city’s close proximity to Shenzhen, which is well known to be the hardware capital of the world and now recently being labeled now as the “Silicon Valley of China.” Naturally it makes sense for Hong Kong’s strength to lie in technology, supply chain and logistics. To further leverage this strength, in January of this year, Hong Kong and Shenzhen announced an agreement to develop an innovation and technology park on 85 hectares of land called the Lok Ma Chau Loop, which is said to be four times the size of Hong Kong’s Science Park. According to Chief Executive C.Y. Leung, this plot of land will be “Hong Kong’s largest innovation and technology platform ever.” Hong Kong is also located strategically in the center of Asia, a mere 5 hour flight away from half of the entire world’s population. (China and India).
A second important strength of Hong Kong is its prominence as a global financial center. Hong Kong remains one of the top three financial centers of the world and there is a clear opportunity for the city to become a top three global startup and fin-tech hub. Finally, Hong Kong’s diverse demographics, strong infrastructure, convenient transportation and friend tax regime all make it a very attractive location to build a company.
Hong Kong’s Challenges
Hong Kong, just like any major startup hub experiencing explosive growth, sees its fair share of challenges too. One of the largest deterrents is the high cost of living underpinned by sky high property prices. Building a company is hard enough as it is, the last thing an investor wants to see is their investment dollars getting spent on exorbitantly high rent. The issue of Government support (often compared to Singapore) continues to be a challenge that Hong Kong faces. To combat some of this criticism, in early January 2017 Chief Executive Leung announced a brand new HK$2 billion dollar government investment fund aimed at boosting technology and innovation in Hong Kong by providing support to startups. Wait a minute, that’s a good thing isn’t it? While this may sound like a strength, it’s far too early to tell if Hong Kong’s government has the investing prowess to successfully deploy the fund and achieve its longer term goals.
So what does Hong Kong need to truly become a global player in the world of rapidly emerging startup hubs? Competition is fierce which means Hong Kong needs to be aggressive. First and foremost is investor education. As a city whose wealth has largely been built on property investments, early stage investing has traditionally never been seen as an viable asset class. This mentality is slowly changing as the second and third generations of traditional Hong Kong SMEs rise through the ranks of their family hierarchy. The latest generation know full well the importance of technology and startups in our world so it will only be a matter of time before the financial support follows suit. The second thing Hong Kong desperately needs is a Unicorn exit. Unicorns always put startup ecosystems on the map globally. We saw that happen in Israel after Google bought Waze. Despite Israel being known as the “Startup Nation” no one actually gave them the attention they deserved until that exit. Hong Kong needs one of the same.
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