HongKong Impression I – a Nice Place for VCs for Holiday Not for Investment?

When we talk about web startups, we usually care about two things at the beginning, the ideas and the money. And most likely creative ideas would not make money at early stage, so we need money to grow the ideas quickly.

HongKong, if we call it the center of venture capital in Asia, most of you would not disagree. Many venture capital companies have their branches even headquarters set up there, and there are tens of influential and top rich people and family also living there, even local investors often travel to HongKong for all sorts of reasons. However, when I talked to several local entrepreneurs who are in HongKong web industry, they all gave me the same impression: HongKong, it’s a nice place for VCs for holiday, but not for investment, at least for web industry.  As a startup founder said,

“There is no angel investors in HongKong!”

The Dilemma, which market to go, HongKong, International or Mainland China?

HongKong is quite international, for most business people they take it as the advantage. But when it comes to the web business, it becomes kinda of dilemma. Basically, unlike the startups based in mainland China which mainly targeted at the local market, HongKong web startups are able to face three market: HongKong, International and Mainland China.

• HongKong – it’s a good market which you can make money, but given 7 millions residence here, the market is far too small to convince VCs or angel investors to invest money. “They don’t believe the business behind your idea can be scalable enough”, a local friend said so.
• International – it’s relatively easy to find entrepreneurs in e.g. silicon valley who are originally from HK, and they are doing web business targeting at international market. If HK young generation wants to do startup for international market, why not come back to HK to do it? Besides, Internet business itself is easy to be international, HK-based web startups have not much advantage on that.
• Mainland China – although people might think there is not much language barrier and culture difference, most HongKong young entrepreneurs are educated in international schools and using international web service themselves, so it’s hard for them to catch up with what’s happening there. A local entrepreneur also pointed out that as they were surrounded by foreign media which from time to time is reporting about the ‘censorship’ issue in main land China. HongKong startups are not sure how-to. So VCs would not pay! If HongKong startups are ‘bold’ enough to target at Chinese market, the best solution to start with is to re-locate to mainland China, such as Guangzhou.

The government funding

I used to talk to startups in Singapore and Malaysia. They don’t really have a very active VC market or many angel investors, but they say both governments are kinda of active, i.e. they have the fund open to everyone. I thought HK must be same, but it seems I am a bit wrong. “Yes, we have all sorts of funding from government. But in their eyes, your ideas are either big enough to potentially change the world, or just blocks”, a local entrepreneurs said, “they are only interested in Hi-tech stuff, and don’t really understand what’s a cool idea for web business.” The HK government funding is usually allocated for university projects.

There are exceptions, but only few

Well, there are several exceptions which have ever raised funds and are quite successful:

• Lakoo – started in HK focus on mobile games development for many years, now has office in HK, Guangzhou, Wuxi and Beijing;
• 6waves – a FB social game development company with headquarter in HK and office in SF, U.S. It’s said that the revenue reached $10millions in 2010.
• EditGrid – an online-spreadsheet service providers invested by WIHarper, acquired by Apple Inc. (our coverage)
• uBuyiBuy – the HK local groupon service acquired by Groupon, now is Groupon HongKong. (our coverage)
• AliveNotDead – a social-networking website is based in HongKong and has about 500,000 users. About 80% of its members are Chinese users in the mainland, Taiwan or North America. (our coverage)

“But most of them was able to survive because of the income from some side (outsourcing) projects, not the angel investment,” a local friend commented.

Are there any startups in HK?

Till now, you may feel disappointed about HK local startups scene. Well, please hold on, read our HongKong Impression II – HK local startups Bootup! coming next.