Before looking at the future of the Hong Kong startup ecosystem, it’s important to begin with the past. The Hong Kong startup ecosystem has seen tremendous progress during the past five years.
The most important factor has been the entrepreneurs themselves. Without entrepreneurs, there would be no ecosystem. To build teams, of course additional talent has been needed, and Hong Kong has seen a strong mix of immigration and inspired young people. Next, capital from angel investors and real estate from co-working spaces has provided the the basic resources for starting a company. The first accelerator in Hong Kong, AcceleratorHK, was started by my partner Stephen Forte and Paul Orlando, with a wave of new accelerators now following. Education was added to the mix when my partner Allison Baum brought General Assembly to Hong Kong, and there are currently several options for learning the basic skills about startups.
So what’s next?
First, we need more of everything. More entrepreneurs, more talent, more angel capital, more accelerators, more education and, yes, even more co-working spaces.
Second, we need to pass the mom test. Right now, entrepreneurship has entered the consciousness of the younger generation in Hong Kong. That’s a great start. But to really make it go mainstream, we need to convince all of the moms in Hong Kong, including the tiger moms, that entrepreneurship is serious option for their children. Of course we need heroes, but rather than simply creating idols for worship, it is important to show these moms that entrepreneurship is a diverse ecosystem where people with different skills can find successful and meaningful careers. Joining a successful and fast growing startup as an employee with equity is actually more rewarding than being the sole founder of a project that never makes it off the ground. Working as a service provider who supports the startup ecosystem is a meaningful way to give back to society. Becoming a lifestyle entrepreneur can provide the flexibility for people to balance work and life. As a startup ecosystem, we need to reach out to moms all across Hong Kong and get them on board.
Third, we need private sector investors, limited partners, in home grown early stage venture capital funds. All anecdotal evidence, both formal and informal, suggests that startups are able to raise angel funding in Hong Kong but when reaching Series A they typically look outside of Hong Kong for investors. Not only is this frustrating for the startups, it creates a real risk for Hong Kong that these companies will scale up their operations elsewhere just as they reach the sweet spot of growth. There are many institutional investors based in Hong Kong, but their investment focus is traditional sectors like property, foreign markets or later stage growth capital. Other countries have successfully built up early stage venture capital based on the foundation of local limited partners. Hong Kong is already a powerhouse global financial centre with strong growth and late stage capital but to build a sustainable startup ecosystem the connection between finance and startups needs to be strengthened.
Let’s make the next five years of the Hong Kong startup ecosystem as productive as the last five. To reach the next stage of evolution, we need more of everything and also two additional factors: passing the mom test and local limited partners for early stage venture capital funds. As Hong Kong legend Bruce Lee said, “There are no limits. There are plateaus, but you must not stay there, you must go beyond them.”
Tytus Michalski (@tytusm) is Managing Director of Fresco Capital – see his profile on Startbase.hk
While I agree HK has made great strides, I find this article doesn’t state anything concrete to help and displays a poor understanding of startup ecosystems (and Asian culture, for that matter).
Regarding entrepreneurs, you state that :
“Hong Kong has seen a strong mix of immigration and inspired young people.”
– Hong Kong has always had this, what it lacks, still, is curiousity and learning outside the norm. The base of an entrepreneurship community is its shared interest in solving problems, and being curious and courageous enough to attack those problems with their intelligence. This is the antithesis of the rote-learning and task-based work culture here, and requires hotbeds like Dim Sum Labs and Cyberport to foster curiousity and prototyping.
“Next, capital from angel investors and real estate from co-working spaces has provided the the basic resources for starting a company”.
– A nod to your accomplishments, but neither HK nor Silicon Valley need more money- and time-sucking “accelerators”, “mentor programs”, and “pitch competitions”. These are like pieces of litter along the street attracting flies and averting our focus as entrepreneurs, kill them off and redefine the ‘basic resources for starting a company’ to: “talent and financial risk support” instead of taking funds / equity to “do advisory” and “providing marketing support” or giving out crappy office space to go with crappier advice. This is just making it more expensive to advance a real startup here.
Reward the innovators in 1) revenue models over pure growth models, 2) application of technology over abuse of technology, and 3) Hong Kong’s strengths instead of startup consumerist cliches like phone-case-making apps and shopping portals.
This is how you might do that with your power: 1) fund some maker spots and market them to the startuppers as a place to experiment, 2) the young here are not inspired by 10% equity in 10% possibility and 90% risk, they’re inspired by money, so show them they can make money applying themselves by supporting them in disrupting local industries – it’s painful for an economy, but Goliath must go for David to win.
“real risk for Hong Kong… these companies will scale up their operations elsewhere just as they reach the sweet spot of growth. “
– Let’s face it, it’s an extremely small market, we’re always going to raise funds outside here, because the HK dollar is weak and the scope is small, if we want to go big, we’ll just need to make kitschy designer products to sell to the mainland… perhaps HK could really benefit from its own local Kickstarter, though.
My point is, Enough is enough: Hong Kong doesn’t need more of the same – it needs to reinvent itself to leverage its core strengths in FMCG, trading, and proximity to the world’s largest manufacturing base. Let the US continue making photo-sharing and parking apps, provide HK entrepreneurs with greater support for innovations in logistics and the new fields involving manufacturing or providing inlets to China.
One last thing: it doesn’t need any more of the same old filler articles like this, either.
I’ll respond to the key points.
You say
1)”requires hotbeds like Dim Sum Labs and Cyberport to foster curiousity and prototyping”
and yet also
2) “neither HK nor Silicon Valley need more money- and time-sucking “accelerators”, “mentor programs”, and “pitch competitions”. These are like pieces of litter along the street attracting flies and averting our focus as entrepreneurs”
Statement 1) suggests you do see value in some organizations while statement 2) suggests you don’t see value in all organizations. Through diversity comes choice. What you see as litter may actually be a treasure for someone else.
You say
“This is how you might do that with your power: 1) fund some maker spots and market them to the startuppers as a place to experiment, 2) the young here are not inspired by 10% equity in 10% possibility and 90% risk, they’re inspired by money”
In case you are not aware, Fresco Capital is an active early stage investor in companies across Hong Kong investing cash, and we take very small minority stakes in companies (totally the opposite of your 10% equity for founders number above). Of course, we also add value in addition to money.
You say
“Let’s face it, it’s an extremely small market, we’re always going to raise funds outside here”
These are separate issues. Startups targeting a global market can still scale meaningful parts of their core operations in Hong Kong, especially the higher value added ones. This is precisely where “financial risk support” can help to scale locally.
By definition, startups are not more of the same, they are focused on doing something new. So building a startup ecosystem means exploring and creating.
Tytus
Thanks for your reply, TM, appreciate your response. Some final words:
“Through diversity comes choice.”
– Fair point, and true, but an empty statement. Supporting one organization over another is more a matter of methodology than label here; Dim Sum Labs is a great hacker space that helps propagate (what I believe to be) the right kind of methodology (hack things together for curiosity’s sake, hardware-centric, creation above consumption) whereas accelerators and the like in HK have been more akin to beauty pageants or corporate brand-a-thons than mentorship programs, while rewarding a dwindling B2C marketplace.
Only 25% of your listed investments appear to be HK-listed, in fact, and of those, only 2 of those investments appear in a sector not related to media or fashion. This is exactly the issue HK needs to face, and needs your help to push it in a strong direction that can have impact for society (their lives, not their wallets, that is).
I would disagree that funding and scaling are different issues – why fund scaling in a market that has only taxpayers? Either 1) access to the consumer market it sits at the bell-end of, or 2) expansion into the growth markets nearby. The problem with that is: 1) HK is a completely different market stage (for scalability of tech) in comparison to China, and 2) the other growth economies already have thriving startup scenes of their own that HK is not strongly leveraged to compete in. The result: we raise funds in the US for the money, the market opportunity, and the humungous knowledge base that needs to be build here.
We’re both after the same things — a better startup scene for HK — so the point was simply this: HK’s entrepreneurs don’t need to pass mom tests and have more of the same, we need to provide real opportunities for real small business owners (“pre-revenue startup” is a formal term for “trying to make an app”) to make a startup ecosystem built on Hong Kong’s strengths (identified in previous comment).