Managing Director of Fresco Capital Ms. Allison Baum and co-founder of Archangels Access Mr. Kevin Yeung were on stage at our “Startup Training and Pitching event” in Hong Kong. With TechNode founder Dr. Lu Gang moderating, they shared their ideas on Hong Kong’s startup ecosystem and gave advice to local startups.
Gang: How is the startup ecosystem in Hong Kong?
Kevin: It’s getting better. FindDoc, which is now partnered with SMS in Japan, was the first startup I invested in. It won an award for Best App in 2012, back when it had about 100 local competitors. FindDoc was Hong Kong’s first online healthcare information and appointment platform. I was also the first investor in GogoVan which also became a winner in 2014 when it had to compete with over 1,000 competitors. That’s ten times the number that FindDoc competed with just two years earlier. With so many more entrepreneurs, I believe the environment has become much more competitive which makes everyone stronger and the ecosystem more robust. This is good news.
Allison: When I got here in 2012, there were only three co-working spaces. Now there are over 30! There has been a very big effort by the community to mentor new startups which has played a big role in the growth of the entire ecosystem.
Gang: What are the advantages for startups in Hong Kong?
Kevin: Embracing different cultures, Hong Kong is a unique international hub for business. It’s a five-hour flight to most major Asian cities. It has an English-speaking environment, with its low tax, strong legal infrastructure and ease of setting up new companies make it ideal for aspiring startups.
Kevin: Hopefully – the Hong Kong market is too small to be interesting. Startups can’t afford to just focus on the diminutive local market; they must aim to go global or go home.
As advocates of Hong Kong startups, we do what we can to champion them overseas. For example, since inception my partner Gabriel and I wanted to help Steven and his team bring GoGoVan overseas. By working with like-minded corporations from the very beginning, the team was able to quickly expand to Singapore followed by Taiwan and now China, as their partners were already strong regional players.
Gang: Do Kong startups think of entering the China market?
Kevin: China is the holy grail for many Hong Kong startups, but it’s by far the most difficult market in Asia in which to succeed. Participating in China is very expensive, so startups need lots of resources to make an impact. They also have to be very strategic: it’s important to have a strong local partner to to help execute their China strategy.
Allison: Successfully entering China requires working with the right people. Teams often express interest in China but have never done business there. That is a red flag. For us to consider investing, they need to have experience in China or have strong partnerships with local stakeholders.
Gang: How about entering the Southeast Asian market?
Kevin: Singapore is a great forward thinking country that’s easy to enter and quickly adapts to new services and ideas. Taiwan is also a good market to launch in where users are loyal towards first movers. But regardless the market you choose, it’s always good practice to start small to test the market.
Gang: Is it hard for Hong Kong startups to raise funds?
Kevin: It’s always difficult to raise capital. While there are certainly a lot of wealthy people in Hong Kong, investing in startup is still a new concept and the risks are high. Investors can lose everything quickly with startups. Frankly, its not for everyone. Startups should try to earn investment from investors who can help them strategically.
Allison: There is a lot of money in Hong Kong, but it’s not just about finding investors. It’s about finding investors that believe in your mission and can add value to what you are building. That is not always so easy.
Gang: How much do VCs/angel investors invest in a seed round?
Kevin: It’s about US$300,000-1 million.
Allison: A typical seed round is between US$300,000 and US$3million, usually raised from multiple investors. We always invest with co-investors.
Gang: How big are the valuation for Hong Kong startups?
Kevin: Valuations can go from US$2 million to US$10 million.
Gang: Which investment areas are you looking into?
Kevin: We are actually pretty open minded. However, we believe an interesting opportunity for Hong Kong-led innovation is in hardware. Southern China has led the world in the production of high tech products. If more R&D is done locally, then local giants will emerge. We already produce everything here so the infrastructure is all set and ready to go.
Allison: We are particularly excited about education technology and Asia is certainly a hot spot for this. From both a financial and an impact perspective, there is a lot that technology can do to revolutionize the industry. Plus, there are 600 million K-12 students in Asia and the average Asian family spends 40% of their income on education, so there is a real market there.
Kevin: I would love to see much more cross-border collaboration as well as Chinese companies setting up operations in Hong Kong. One of China’s most innovative companies is just two hours away as Tencent is headquartered nearby in Shenzhen. There is so much going on in Shenzhen that it would be a shame if some of it doesn’t flow over to Hong Kong. Especially when the best ideas can get funding here.
Allison: There will be more. Hong Kong is a hub for the rest of the region with strong infrastructure, good IP protection, ease of incorporation, and plenty of investors. It is very easy to attract global talent to Hong Kong – that is a very important reason to be here as opposed to China.
I would also like to mention Renren’s funding on Gogovan. Chinese social network Renren took a roughly 10% stake in GoGoVan, giving it an additional $10 million in funding.
Gang: What do you think is missing from Hong Kong’s startup ecosystem?
Allison: Institutional investors and VCs. There also needs to be more success stories coming out of Hong Kong. People need reference points of success.
Audience question: What is the most important value that you consider when investing in startups?
Kevin: Drive and grit from the entrepreneur. Their ideas are actually secondary considerations. Archangels Access focuses on identifying and backing the most tenacious entrepreneurs.
Allison: The team always comes first. We look for five key traits: curiosity, purpose, courage, authenticity and integrity.
Editing by Mike Cormack (@bucketoftongues)