Hong Kong is a breeding ground for potential unicorns

Hong Kong’s Vitasoy was born out of necessity. Dr. Kwee Seong Lo, the company’s founder, learned of the nutritional value of soy milk following a visit to Shanghai. Upon his return to Hong Kong, he started manufacturing and distributing the high protein drink to combat malnutrition in the city.

Lo’s story is not an isolated one. From Vitasoy’s soy milk to Chow Sang Sang’s jewelry, there are many examples of the dynamism of the city’s early entrepreneurs. Fast forward almost 80 years, and the spirit not only remains but is driving the city’s thriving startup scene.

“I think Hong Kong has always been the perfect environment for entrepreneurship,” said Terence Kwok, founder and CEO at Tink Labs. He explains that entrepreneurship in its broadest sense, not just in its association with technology companies, has always been part of the city’s culture.

“We have some of the greatest textile companies. We have some of the greatest hotel groups and restaurants. From regulation to taxes, to being a bridge between China and the West, it has always been the perfect place,” he said.

Kwok, speaking at the 2018 Internet Economy Summit held in Hong Kong last week, joined a panel discussion of founders from four of the city’s unicorns. Joining him were GOGOVAN co-founder and CEO Steven Lam, WeLab founder and CEO Simon Loong, and SenseTime co-founder Xu Bing.

The Internet Economy Summit (IES) was held in Hong Kong on 12 – 12 April 2018. (Image Credit: IES)

The discussion, entitled “The Path to Unicorn: The Dialogue,” aimed to demystify the journey from seed to $1 billion valuation. And, in doing so, highlighted the opportunities Hong Kong provides for building a successful business.

“When we started, not really a lot of people talked about startups. When we talked about startups people thought we were silly,” said Lam, CEO of on-demand transportation company GOGOVAN.

The city has seen its number of homegrown startups rise drastically in the past few years. And perceptions have changed. According to data from Invest HK, there were 1925 startups in Hong Kong in 2016, a year-on-year increase of 24%. The city also has the 5th fastest growing startup ecosystem in the world.

Lam notes that when he founded GOGOVAN in 2013, there were only 900 applications to the city’s Cyberport Creative Micro Fund (CCMF). Five years on,“thousands and thousands of applications are flowing into the microfund, not including the incubation program.”

But for other companies, it is not just access to funding, changing views, and increased adoption of mobile technologies that are important. The city’s regulatory structures also determine the rate at which they grow.

“Fintech requires a few other pillars in order to be successful,” said WeLab’s Simon Loong. “What we saw in the past couple of years is government and financial industry support.”

Hong Kong has been a global financial hub for years. To remain so is even written into the city’s Basic Law. To stay competitive, regulators need to give fintech companies room to grow. The government set up several regulatory sandboxes, hoping to drive development in the sector.

And it’s not just fintech companies that are benefiting from the city’s regulatory structures. The metropolis is attracting increasing numbers of investors, and this is pushing founders to start companies.

“I noticed that a number of the top investors are actually in the same building,” said SenseTime co-founder Xu Bing. The company, which provides AI-powered facial recognition technology,  recently closed a round of funding worth $600 million. It is now the most valuable AI firm in the world. “Almost all the top investors are gathering here in Hong Kong, so it’s easier to talk to them about our ideas, our philosophy, what we want to do, and what values we want to create.”

From left to right: Tink Labs founder and CEO Terence Kwok, SenseTime co-founder Xu Bing, WeLab founder and CEO Simon Loong, and GOGOVAN co-founder and CEO Steven Lam.

For unicorns like SenseTime, academic prowess plays a significant role in their success. According to Xu, Hong Kong is the perfect city to recruit researchers and scientists dealing with AI.

“Deep learning started back in 2011 [and] is now the driving force behind AI”, said Xu. “Between 2011 and 2013 there were totally 29 papers in the world that were using deep learning to solve computer vision. Half of them were published in Hong Kong.” This is why the company is setting up a core research center in the city, hoping to attract even more AI talent.

Despite the city’s many advantages, it’s by no means a startup’s panacea. “I think one of the problems that we had in fintech was there is a lot of finance talent but not a lot of tech talent in the past,” said Loong.

The city’s proximity to one of Mainland China’s tech centers solved this problem. “Hong Kong has a very deep pool of finance talents, Shenzhen has a very deep pool of tech and software development talent. Our solution was [to] combine the best of the two,” he said.

This lack of tech skills correlates to the rate of experimentation by companies in the city, according to Xu. He notes that during the Mainland’s rapid development in the past ten years, Hong Kong has mostly been left behind. “The mainland is still more open to AI. They are willing to apply more technologies to do upgrades,” he said. “Technology companies should leverage more of China’s resources.”

With Mainland China on the city’s doorstep, Hong Kong startups are uniquely positioned to utilize its vast pool of technical talent and enter its massive market. When the city was handed back to China in 1997, it made up around 18% of the country’s GDP. That number fell to 3% in 2017 due to China’s enormous economic growth.

The founders are well aware of this. While Hong Kong provides an exciting testing ground for new platforms, it is a relatively small market, something that they implore startups to consider.

“Hong Kong, especially for the internet economy, is a relatively small population,” said Kwok. “Hence, from day one there needs to be, not necessarily a global view or a global path, but at least an ambition for achieving that, otherwise it’s going to be quite difficult,” he said.