AN­GEL CHOIR TURNS DEAF EAR TO LO­CAL STAR­TUPS

Al­most every­one is catch­ing the buzz as HK strives to make its mark in new tech­nol­ogy, but most in­vestors are only look­ing for a quick buck. Wang Yuke re­ports.

China Daily (Canada) - - HONG KONG -

The hunger for quick re­turn on in­vest­ment con­tin­ues to smother Hong Kong’s en­tre­pre­neur­ial spirit, says the Cen­tre for En­trepreneur­ship at the Chi­nese Univer­sity of Hong Kong (CUHK).

The con­cern comes as Hong Kong mounts am­bi­tious plans to di­ver­sify the lo­cal econ­omy, pull back from fi­nance and prop­erty devel­op­ment and move up the lad­der into high tech.

It’s plain enough. The gov­ern­ment has tried giv­ing a wakeup call to the in­vestor com­mu­nity. There are pro­grams for help­ing star­tups and stir­ring in­no­va­tion, but they’re not work­ing all that well. Ex­as­per­ated, en­trepreneurs say it’s all but im­pos­si­ble to get their hands in the pock­ets of ma­jor com­pa­nies and well- heeled in­di­vid­u­als, when all star­tups have to of­fer is another high tech startup, risky enough as it is, and of­fer­ing slow re­turn on in­vest­ment, even if it does suc­ceed.

The gov­ern­ment tried to sweeten the pot in the 201617 Bud­get last month. Chief Ex­ec­u­tive Le­ung Chun-ying com­mit­ted build­ing to a HK$2 bil­lion in­vest­ment for an In­no­va­tion and Tech­nol­ogy Ven­ture Fund. The idea was to pro­vide match­ing cap­i­tal with pri­vate ven­ture cap­i­tal.

The city is also try­ing to make plenty of room for the en­tre­pre­neur­ial spirit to ex­pand. More space is be­ing opened up for re­search and devel­op­ment. Sci­ence Park is adding another 70,000 square me­ters be­tween now and 2020. It is com­mit­ted to con­tin­u­ing its Cor­po­rate Ven­ture Fund and in­cu­ba­tion pro­grams. Cy­ber­port ear­marked HK$200 mil­lion for fund­ing star­tups. All but ig­nor­ing these ef­forts, sus­pi­cious in­vestors with their eyes on quick re­turn, stand on the side­lines like the wallflow­ers at a school dance.

Pang Shi-choi, 24, stands among the dis­en­chanted. He joined the Jockey Club In­cu­ba­tion Pro­gramme for So­cial In­no­va­tion, of­fered by the Hong Kong Fed­er­a­tion of Youth Groups and the Jockey Club. He came away with a cap­i­tal in­fu­sion of HK$30,000 to de­velop an app for pop-up store own­er­srs who need tem­po­rary busi­nes­sidy premises. He’d al­ready been in the real es­tate busi­ness­sihe and was con­fi­dent he had plenty of good con­tact­sts to help him move his ideaea for­ward. Af­ter ex­haust­ingng his list of con­tacts, he foundnd out no­body cared. Col­league­ses and ex­ec­u­tives, he thoughtht would prove to be strongng al­lies, turned into stranger­srs in the night.

Pang con­ceded gloomi­lyly that most big in­vestors wantnt in big money and fast. He knew his small idea couldn’tn’t meet those de­mands.

Lo­cal cor­po­ra­tions andnd “the rich” are sus­pi­cious of star­tups. Quick money is their drug, says Marta Dowe­jko, eat a post­doc­toral fel­low at CUHK’s Cen­tre for En­trepreneur­ship. edy She headed a study try­ing to dis­cover why Hongng Kong’s startup cul­ture is so ane­mic. The study, “Crouch­ing hs”, Tigers, Hid­den Dragons”, was pub­lished last April.

Aver­sion to in­vest­ing in star­tups is a part of a Hongng Kong busi­ness cul­ture thatat goes back gen­er­a­tions, shehe has learned. Hong Kong is a trad­ing hub where the “quickck buck” has be­come a “deepep rooted” busi­ness prin­ci­ple,e, she said.

Big lo­cal firms and wealthyhy in­di­vid­u­als are no less open­handed nut than peo­ple who put their money in Sil­i­con Valleyey star­tups, Dowe­jko em­pha­sized. aen It’s just that when the “get rich quick” mantra be­comes a crit­i­cal mind­set, new ven­tures that are un­likely to see black ink be­fore their fourth year are not very en­tic­ing.

The study found how­ever that star­tups with fewer than 10 em­ploy­ees do more for the econ­omy than es­tab­lished firms. They grow faster and hire more peo­ple, es­pe­cially dur­ing the first years in busi­ness.

“It’s eas­ier to grow when the firm is small and star­tups of­fer in­no­va­tion that es­tab­lished firms don’t have,” reck­oned Dowe­jko. Although it may take star­tups a year to start gen­er­at­ing profit, the study found the value added ef­fect of star­tups nearly dou­bled over the next three years. “The ris­ing trend does not con­tinue in per­pe­tu­ity,” said Dowe­jko. “It cools grad­u­ally, af­ter that.”

On the ledger to­day, there are 1,600 lo­cal star­tups. That’s a 50 per­cent in­crease over 2014, ac­cord­ing to In­vestHK. Hong Kong may be one of the most pop­u­lar startup cen­ters in the world, but the lack of fund­ing still paints a pretty grim pic­ture of the cli­mate.

A study by Google in col­lab­o­ra­tion with CUHK’s Cen­tre for En­trepreneur­ship in April 2014 dis­cov­ered that among 612 en­trepreneurs sur­veyed, 88 per­cent re­lied on self­fund­ing as their ma­jor source of seed cap­i­tal. A mea­ger 8 per­cent gath­ered their earlystage fund­ing from ven­ture cap­i­tal­ists. Only 1.8 per­cent of lo­cal ven­ture cap­i­tal and 21 per­cent of an­gel in­vestor fund­ing went to lo­cal star­tups be­tween 2009 and 2013, the re­port said.

Hong Kong’s startup cul­ture is in its in­fancy. It hardly com­pares with the ma­ture startup mar­kets in the US and else­where, said Rachel Chan, founder and chief cat­a­lyst of In­no­foco. Her mis­sion is to help lo­cal, in­no­va­tive busi­nesses get rolling. “It is a mat­ter of sup­ply and de­mand. As the en­tre­pre­neur­ial cul­ture gets more and more ma­ture and ro­bust, it will at­tract more in­vestors who will come here look­ing for promis­ing busi­nesses wor­thy of in­vest­ment.”

Po­ten­tial in­vestors in Hong Kong see only the high risks of new star­tups, and ig­nore the fact that in­no­va­tive ideas that prove out can turn small risks into big re­turns.

The risk averse men­tal­ity sank in deeper, thanks to the dot-com bub­ble that burst around the Mil­len­nium, Dowe­jko said. Hong Kong in­vestors who climbed aboard the dot-com bub­ble lost bun­dles of equity and in­vest­ment in star­tups has never re­ally re­cov­ered, added Dowe­jko.

Skep­ti­cism pre­vails es­pe­cially among the older in­vest­ment crowd. These are the ones who have played a part in build­ing big suc­cess­ful com­pa­nies. Many of them came here dur­ing the 1960’s and 1970’s and started their own com­pa­nies to sur­vive. Their days of tak­ing big risks out of ne­ces­sity are hap­pily re­moved to the past, com­mented Dowe­jko. By con­trast, she said, to­day’s young en­trepreneurs are mo­ti­va­tion-driven and not driven by ne­ces­sity.

Get­ting back to how star­tups are a ma­jor source of new jobs, the study pointed out that star­tups with fewer than 20 em­ploy­ees do a much bet­ter job than other seg­ments of the econ­omy. An av­er­age com­pany starts with an av­er­age of 3.35 em­ploy­ees, grow to five em­ploy­ees by the end of the first year, and by the end of the fourth year, if they sur­vive, in av­er­age eight em­ploy­ees.

Polled by In­vestHK in Au­gust 2015, the re­spon­dents from 40 co-work space, in­cu­ba­tor and ac­cel­er­a­tor lo­ca­tions in Hong Kong re­vealed that there were 3,721 em­ploy­ees at these star­tups, rep­re­sent­ing a 56 per­cent in­crease over a year ago. And there were 4,535 work­sta­tions avail­able, a 60 per­cent yearon-year in­crease.

There are a few suc­cess­ful busi­nesses in Hong Kong that started from noth­ing. One is Di­vide, less than five years old. It was founded by two peo­ple from Hong Kong and one from New York in 2011. The com­pany’s de­vise al­lows mo­bile phone users to have two phone num­bers in one smart phones — one for pri­vate use and the other for busi­ness.

To fill the gap in cap­i­tal ven­tures and an­gel in­vest­ment, ex­perts from In­no­foco and Com­pass (a San Fran­cisco-based re­search com­pany, pro­vid­ing so­lu­tions for small and medium-sized busi­nesses) agree that Hong Kong should look for po­ten­tial in­vestors out­side Hong Kong. The likely so­lu­tion is to pro­vide in­cen­tive for global ac­cel­er­a­tors to come to Hong Kong, with spe­cial in­cen­tives for lo­cal star­tups al­ready sit­u­ated in the world’s top startup ecosys­tems. In other words, Hong Kong star­tups need more in­ter­na­tional ex­po­sure.

En­trepreneurs, on the other hand, must keep look­ing and make sure that they at­tend ev­ery startup event they can find, noted Chan from In­no­foco.

Con­tact the writer at jenny@chi­nadai­lyhk.com

PHO­TOS PRO­VIDED TO CHINA DAILY

Startup en­trepreneurs share their ex­pe­ri­ences dur­ing the launch of HKFYG (Hong Kong Fed­er­a­tion of Youth Groups) Jockey Club So­cial In­no­va­tion Cen­tre in Jan­uary 2016.

The startup ecosys­tem in Hong Kong sees con­tin­ued growth in terms of the num­ber of star­tups and co-work spa­ces and in­cu­ba­tors ini­tia­tives.

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