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Why Hong Kong remains attractive to tech startups, despite challenges

Hong Kong’s companies are dealing with a difficult time. The long-running US-China commerce conflict, in addition to the months-long road protests, have plunged Hong Kong right into a technical recession, with town’s gross home product (GDP) contracting 3.2% within the third quarter, in contrast with the second quarter.

The slowing enterprise panorama has additionally created a more difficult atmosphere for startups looking for alternatives in Hong Kong.

Hong Kong’s benefits are lengthy rooted in its steady monetary system and good startup infrastructure. So though traders have develop into extra cautious, startups with nice potential and strong enterprise plans will discover alternatives.

“Buyers have definitely develop into extra passive and conservative (over latest months), which has made it tougher for startups after they search for progress hackers,” Alvin Lam, managing associate of personal fairness fund, T12M Ventures, says.

Nonetheless, causes for optimism stay, with latest exercise suggesting that town’s fundamentals are nonetheless strong and it nonetheless has lots to supply to new companies.

Data: InvestHK. Infographic: SCMP/Charles Harrison

September’s announcement that Hong Kong startup accelerator Betatron will make investments as much as US$150,000 (RM620,000) in every of the eight tech startups it chosen from an inventory of greater than 1,000 candidates has additionally taken on particular significance at this difficult time.

Lam believes that whereas fundraising might have “develop into tougher”, Hong Kong nonetheless stays aggressive as a regional hub for innovation.

“Hong Kong’s benefits are lengthy rooted in its steady monetary system and good startup infrastructure,” he says – including that an abundance of traders and lack of capital management are enticing components for startups.

“Entrepreneurs might run into difficulties conducting fundraising after they arrange bases in different Asian cities, particularly in locations with out the free movement of capital,” Lam says.

“So, though traders have develop into extra cautious today, startups with nice potential and strong enterprise plans will proceed to seek out alternatives.”

Data: InvestHK. Infographic: SCMP/Charles Harrison

Pioneering expertise

Hong Kong’s startup panorama has lengthy loved a aggressive edge within the area.

Town is house to plenty of unicorns, together with logistics firm Lalamove and synthetic intelligence agency, SenseTime. With a valuation of greater than US$1bil (RM4.1bil), these startups have expanded considerably throughout China and the broader Asia-Pacific market.

Joseph Fung, managing associate of Saltagen Ventures, an early-stage enterprise capital agency, says he believes the native tech ecosystem is resilient as the numerous world-class universities have supplied much-needed expertise for researching superior applied sciences.

Previously, some so-so startups have been most likely failing, however have been nonetheless in a position to search funds from keen traders. Now, startups want to make sure they’ve highway map earlier than they will obtain a brand new spherical of cash

“We’re sturdy in areas comparable to medical expertise and engineering,” he says, including that this has made it doable for startups to crew up with universities in analysis and growth (R&D) actions.

The most recent QS World College Rankings launched in October present that three universities in Hong Kong have been ranked within the world prime 50.

The resilience of town’s startup panorama is finest illustrated by Taiwanese most cancers testing startup ACT Genomics establishing a brand new laboratory on the Hong Kong Science Park within the New Territories in July, regardless of the financial uncertainties.

Data: InvestHK. Infographic: SCMP/Charles Harrison

That includes funding of HK$20 million (RM10.7mil), the 650 sq m centre takes benefit of native medical expertise to make it simpler to hold out scientific analysis.

Based in 2014, ACT Genomics gives most cancers sufferers with a DNA take a look at to match their situations with the best remedy plans.

Dr Chen Hua-chien, CEO of the corporate, instructed the laboratory’s opening ceremony that Hong Kong would allow it to “keep on the innovative” and construct a regional community of joint-venture labs.

“We’re right here to rework the prevailing most cancers remedy mannequin and make most cancers extra manageable,” he mentioned.

Some promising native startups are additionally working to use pioneering analysis outcomes into markets throughout the area.

One instance is CU Coding, a startup that gives software program that enables companies to spice up their info safety and improve community reliability.

The software program is rooted in a expertise known as community coding, which was developed by professors at Chinese language College of Hong Kong (CUHK) over 20 years.

Aldous Ng, who co-founded the corporate with a banker and 4 professors, believes Hong Kong’s well-connected enterprise panorama has allowed CU Coding to override the uncertainties and find purchasers in neighbouring markets.

Aldous Ng, co-founder of CU Coding, is promoting its locally developed network coding technology in the Greater Bay Area.

Whereas his firm has supplied applied sciences for the Hong Kong authorities in pushing ahead the good metropolis growth, together with upgrading the cloud infrastructure, it now has primarily centered on the Guangdong-Hong Kong-Macau Better Bay Space – encompassing 11 cities in probably the most economically vibrant area in southern China.

“We discover the China authorities has pushed arduous (for) all of the industries to make use of modern applied sciences supported by numerous authorities programmes,” he says, including that town’s proximity to the Better China area has given startups an enormous benefit in increasing into different markets, even throughout unstable instances.

Regional hub for innovation

Whereas the financial system might have been slowing prior to now few months, plenty of schemes have continued to offer assist for startups looking for new alternatives, highlighting town’s attribute resilience as a regional hub for innovation.

On Nov 8, the Hong Kong Science Park organised the Elevator Pitch Competitors 2019 at sky100, on the 100th ground of Hong Kong’s Worldwide Commerce Centre, for younger startups from all over the world to point out their concepts to potential traders.

The occasion, that includes 60-second enterprise pitches by startup entrepreneurs to enterprise capitalists, supplied a platform for younger businessmen and ladies to realize worthwhile suggestions and an opportunity to win potential investments.

Data: InvestHK. Infographic: SCMP/Charles Harrison

The Qianhai Shenzhen-Hong Kong Youth Innovation and Entrepreneur Hub – an incubator in Shenzhen, mainland China, located near Hong Kong – often holds occasions to encourage startups to increase within the Better Bay Space.

This month noticed the conclusion of its fourth Qianhai Guangdong-Hong Kong-Macao Youth Innovation and Entrepreneur Competitors, the place profitable startups shared complete prize cash of 7mil yuan (RM4.1mil), with the gold winners in two classes every receiving 300,000 yuan.

Jumpstarter, a startup pitching contest run by the Alibaba Entrepreneurs Fund – a not-for-profit initiative from Alibaba Group, the Chinese language multinational conglomerate specialising in e-commerce, retail, Web, and expertise, – will even be held in February.

The occasion, which options stops in several cities earlier than the grand finale on the Hong Kong Conference and Exhibition Centre, permits startups from all over the world to attach with one another and leverage the strengths of town’s startup ecosystem.

New alternatives

For Lam, a extra cautionary funding atmosphere has supplied the right alternative for startups to consolidate enterprise methods and guarantee they’re self-sustaining earlier than looking for enlargement.

“Previously, some so-so startups have been most likely failing, however have been nonetheless in a position to search funds from keen traders,” he says.

“Now, startups want to make sure they’ve highway map earlier than they will obtain a brand new spherical of cash.”

Alvin Lam, head of private equity fund T12M Ventures, says the current environment may pose difficulties for start-ups, but the most promising businesses will continue to find opportunities.

Excessive-potential tech firms may additionally have a look at programmes comparable to HKSTP Ventures – initially launched in 2015 because the Company Enterprise Fund, which lately has been rebranded.

The fund connects high-calibre startups with private and non-private funding in Hong Kong and past. As much as September 2019, some 35 personal sector traders have been engaged underneath the fund.

Lam says startups ought to at all times have clear solutions in regards to the points that concern traders, comparable to why their product has a big market potential and the way it can disrupt the trade.

Ng, who lately was elected as president of the Better China chapter of a world IT alliance, says tech startups can use Hong Kong as a gateway to seize the great enterprise potential of the Better Bay Space.

In February, China’s State Council introduced plans to advertise innovation-driven growth throughout the megalopolis, with the purpose of turning it into the world’s subsequent tech hub that rivals California’s Silicon Valley.

The Chinese government expects the gross domestic product of the Greater Bay Area, including 11 Pearl River Delta cities such as Shenzhen (above), will reach US$4.62 trillion by 2030. Photo: Shutterstock

Historically, it might be troublesome to enter the mainland Chinese language market with out connections, however elevated government-to-government initiatives between Hong Kong and the mainland have made it simpler for startups to introduce expertise into China.

“Governments throughout the Better Bay Space have provided many funding programmes to finance the expansion of home-grown startups,” Ng says.

Fung, who served as an investor choose on the Elevator Pitch Competitors 2019, says: “My philosophy is that, at any time when there may be volatility, you must put in lots of work and perceive the nuances, and the way the sub-domains might have been affected positively or negatively.”

To boost competitiveness, Fung says startups ought to examine the broad image and perceive what enterprise capitalists are in search of.

Whereas entrepreneurs usually know that Hong Kong can function a worldwide gateway to the Asia market, he says many have “did not establish one thing that may be very direct or actionable for themselves – a purpose for them to land right here”.

Joseph Fung (far right), managing partner of Saltagen Ventures, was one of the judges listening to business pitches by start-up entrepreneurs at November’s Elevator Pitch Competition. Photo: Frank Freeman

For instance, he says that whereas there’s a big stigma within the West regarding the facial- and voice-recognition expertise popping out of China, Hong Kong-based firms are largely unaffected by the bias.

Due to this fact, it could make sense for startups looking for to develop these applied sciences to arrange a base within the metropolis, and never Shenzhen, to allow them to keep away from potential regulatory points when accessing each the Chinese language and worldwide markets.

“In the long run, for traders, they have a look at progress alternatives, they usually fear about it from the angle extra about regulatory points, or itemizing points going ahead sooner or later,” Fung says.

“A number of traders perceive inherently that startups right here in Hong Kong have the potential to develop even past Better China – it’s actually as much as the startups themselves to display their planning.” – South China Morning Publish

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