Hong Kong: Start-up central

Hong Kong is the fifth-easiest place to do business globally, according to rankings released by the World Bank last year, behind Singapore, New Zealand, Denmark and South Korea. Though disappointing in terms of registering property and cross-border trade, the territory features in the top 10 in five of the World Bank's 10 categories: protecting minority investors, paying taxes, dealing with construction permits, getting electricity, and starting a business.

However, Hong Kong is not an easy place to be a technology start-up. In a ranking of global start-up ecosystems by research firm Compass, Hong Kong doesn't even make the top 20, although it has potential and is clearly trying to make up lost ground.

Compass examined five criteria through a combination of surveys, interviews and number-crunching: funding, talent, policy, market reach and start-up experience. Hong Kong falls short in the first three. In funding, there are gaps at the seed stage (Compass says there is a lack of angel investors) and the Series C and D stages (although this is largely a function of companies failing to achieve scale in their earlier institutional rounds). There is also a talent gap as graduates eschew the risk of start-ups for the certainty of employment with large corporations.

As for policy, Hong Kong ranks comparatively low but it has actively begun to incorporate innovation and entrepreneurship into municipal policy. The recent announcement of several initiatives intended to support the technology sector - including a HK$2 billion ($256 million) fund that will co-invest in start-ups alongside venture capital funds on a matching basis - is evidence of this progress.

Despite the low base, Compass found that Hong Kong was the fifth fastest-growing start-up ecosystem globally last year. In short, much of the general business infrastructure is already in place and so the territory is able to develop quickly as more sector-specific initiatives take hold. The study recommends targeting particular sub-sectors such as the internet of things and financial technology - leveraging Hong Kong's proximity to the hardware hub of Shenzhen and its strong financial services industry, respectively - and improving the availability of technical talent through progressive immigration policies.

There are two more suggestions: increase global know-how among entrepreneurs and develop an angel investor community. In terms of building know-how, there are steps the government can take in its role as industry catalyst. Co-working spaces, incubators and accelerators have proliferated in recent years and their health is vital to the sharing of ideas, experiences and best practices. Any initiatives that ensure technology is affordable and customers accessible are also vital, so a start-up can address a global market from day one, essential in a small geography like Hong Kong.

Singapore has made great strides in both these areas and it sits 10th in the Compass ranking, scoring particularly well for funding and start-up experience. The matching fund concept Hong Kong has announced is well-established in Singapore, with programs in place across multiple stages in order to provide the capital companies need to scale up their businesses. The value of country's ecosystem - calculated by combining start-up valuations at each funding round and at exit - are four times that of Hong Kong.

The angel investor community, however, is more difficult to develop through direct policy input. Rather, it represents the culmination of different policies as successful entrepreneurs come through the system and then invest in the next generation of start-ups. This in turn fills the talent gap as more young people are incentivized to build their own companies. There is certainly greater interest in the space than before, but the report's finding that the average age of founders in Hong Kong is lower than in Singapore or Silicon Valley is deceptive: it points to a lack of repeat entrepreneurs.

If Hong Kong can make life easier for start-ups then angel investors will emerge, but it takes time. In the meantime, positive vibes can go a long way, particularly in terms of shaking young people out of their career conservatism. Hong Kong needs to champion the success stories it is beginning to see.

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