Hong Kong start-ups: The Silicon Harbour

There are few things that illustrate the growing convergence of online and offline commerce as well as Snaptee. Launched this month, Snaptee is an iPhone app that allows users to design a T-shirt in the palm of their hand - in a matter of seconds - and then have it printed and delivered.

"Snaptee is almost the poster child of what I see as a trend in Hong Kong," Adam Lindemann, managing partner of Hong Kong-based Mindfund, tells AVCJ. "It is the intersection of mobile apps and making stuff, and it takes advantage of all Hong Kong's strength."

The Hong Kong-based company behind the app - which received $600,000 of seed funding in February - was started by Wai Lun Hong and Gary Lee, the founders of Hong Kong daily deal website Gobuya. Snaptee was name-dropped by more than a couple of investors attending The Indus Entrepreneurs (TiE) Investors' Forum last week as one of the start-ups leading the way in Hong Kong's emergence as an entrepreneurial hub.

Lindemann is one of a handful of early-stage investors to have put their faith in Hong Kong's burgeoning venture capital industry, having recently moved over from Japan. He is not alone in his optimism.

The TiE event, the first of its kind organized by the Silicon Valley-based entrepreneurs' network in Hong Kong, played host to several angel investors, venture capitalist and government officials keen to tout special administrative region as a draw for a plucky young entrepreneurs with big ideas - a "Silicon Harbor."

The question is how much is hype and how much is reality. If a start-up scene is to take root in Hong Kong, will it bear any comparison to Silicon Valley?

Hype or reality?

Anecdotal evidence suggests more entrepreneurs are considering Hong Kong, followed by the investors willing to back them, but it seems this has yet to translate into meaningful deal flow.

"One of the biggest problems is perception," admits Simon Galpin, the director general of InvestHK, the Hong Kong government agency responsible for promoting foreign direct investment. "Everyone knows Hong Kong is a great place for multinationals, and a great regional base, but publicity around the fact we have some of the highest office costs in the world creates the impression that Hong Kong is only for the big guys."

Indeed, a recent report by real estate consultancy CBRE still ranks office space in Hong Kong's Central District as the most expensive in the world, costing $235.23 per square foot annually. This compares to $194.07 per sq ft in Beijing and $161.16 per sq ft in Tokyo. It is also more than double that of Singapore - $99.65 per sq ft - another emerging start-up hub.

One way this problem is being addressed is through the proliferation of co-working spaces, the first of which - BootHK - launched in 2011. Some of these spaces fit the mold of a typical incubator or accelerator program in the US or elsewhere in Asia where start-ups are provided with capital and mentorship in exchange for an equity stakes. AcceleratorHK or Softlayer are examples of this.

A great many, on the other hand, simply provide working space as way for start-ups to reduce real estate costs, while providing the opportunity to connect with other entrepreneurs. These include the likes of Hong Kong Commons, The Good Lab or Innovation Labs where a desk or office can be rented cheaply on an hourly, weekly or monthly basis.

"With the availability of co-working spaces the argument that Hong Kong is too expensive for start-ups is really out the window," says Tytus Michalski, managing director of early-stage fund Fresco Capital Partners.

However, some still question the merits of locating in Hong Kong over somewhere like Singapore or Beijing. The region's proximity to mainland China has been both a blessing and a curse. When compared Singapore or Tokyo, for example, Hong Kong is arguably better placed for start-ups taking advantage of China as a manufacturing base and as a consumer market.

Snaptee already outsources T-shirt printing to mainland partners. Arkologic, a maker of solid state data storage devices, which was founded in 2010 and incubated at Hong Kong's M-Lab, makes use of its proximity to China in other ways - it is on the doorstep of the world's largest IT market but also runs its quality assurance functions out of Hangzhou.

This is cost-effective but it also begs the question: Why not just go to China?

"Hong Kong may be unique in being situated right next to the mainland, but that also means the vast majority of the talent, resources and focus is going to be found there," says Chris Evdemon a partner at Beijing-based incubator Innovation Works. "So there is the concern that by comparison not a lot of people are going to take Hong Kong seriously."

At least three cities in China claim Silicon Valley clones of their own. Shenzhen has Nanshan district, home to internet giant Tencent Holdings. In the north, Zhongguancun, part of Beijing's Haidian District, has been recognized as technology hub since the 1980s when it spawned the likes of Lenovo and Chinese tech conglomerate Founder Group. And Shanghai can point to Zhangjiang Hi-Tech Park, which has a strong pedigree for R&D in life sciences, IT, semiconductors and software.

Not just a China angle

Unsurprisingly then, many Hong Kong advocates are eager to downplay the region's connections to rest of China in favor of its global credentials. Fresco's Michalski is of the opinion that to emphasize Hong Kong as a gateway to China misses the point.

"I don't see Hong Kong as a gateway to China, I see it as a global city," he says. "I am a firm believer when I say we shouldn't dilute Hong Kong by saying it is only about China - if you have a China-focused business you don't have to be in Hong Kong. Where Hong Kong differentiates itself is as a global platform."

The argument follows that Hong Kong offers better access to multinationals that can serve as investors and customers to start-ups. Doug Glen, a Hong Kong-based angel investor and an early backer of Arkologic, takes it a step further, noting that start-ups can leverage the region's strong financial services sector. Glen has also invested in Aidyia, which builds artificial intelligence to make predictions on the financial markets.

"Hong Kong is never going to be what Silicon valley is in chip design," he says. "But it could be leading entrepreneurial center for financial high tech, particularly in the booming Asia market."

Wherever Hong Kong start-ups focus their energies there are still questions over the role of government. Should it replicate the model in places like South Korea and Singapore where the government is heavily involved?

As the state-backed champions for Hong Kong's start-up scene, InvestHK has so far limited its functions to helping companies and investors by giving advice and facilitating links in the business community. The agency does not offer capital itself and has been keen to differentiate itself from other, more hands-on, government programs.

"Hong Kong's strength is in not trying to coral or shepherd particular groups of start-ups into projects," says Galpin. "For us it is about supporting and joining the dots, so entrepreneurs coming to Hong Kong can quickly understand what is available to them, how they can go about it and where they can get support."

So far government support has included InvestHK launching its StartmeupHK Venture Program in July. Around 380 entries were received from within Hong Kong and across the globe. Twelve of these will be selected to participate in StartmeupHK Week in December, where they will get access to potential business partners, capital and marketing opportunities.

They will also compete for free advisory services as wells as complimentary work and retail space provided by sponsors and program partners.

Light touch credentials

"There are people in Silicon Valley who talk about the rainforest rather than the paddy field," says Galpin. "We are of the view that it is better to work with individual entrepreneurs, understand what they need and then try to provide them with solutions to make sure that, when they do set up, they are as successful as they can be."

This approach contrasts sharply to Singapore where the likes of Temasek and GIC Private have backed numerous incubator and accelerator programs as well making direct investments into companies. In Hong Kong, however, while government support is welcome to a point, many say the light-touch approach is more effective.

"The government can have a role in jump-starting an ecosystem, but too much involvement is a bad thing to my mind," says Innovation Works' Evdemon. "It needs to be completely market driven. You need to ask yourself what is the role of the Californian or US government in the success for Silicon Valley and the answer is that there isn't any."

In this vein, many industry participants maintain that the Hong Kong can only become a start-up hub by nurturing an entrepreneurial culture from the grass roots, with individual investors and companies leading the way.

"There is no amount of money you can deploy that can create a Silicon Valley ecosystem," says Glen. "But where you have a virtuous combination, such as good universities, engineers and mentors, little by little you will have the critical mass needed to create an entrepreneurial hub."

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• Topics
• Venture
• Early-stage
• Greater China
• Technology
• Technology
• Hong Kong (China)
• Venture
• seed