Start-up Catalyst in Hong Kong: Overview
The “dual circulation” development paradigm put forward in China's 14th Five‑Year Plan, with domestic circulation as the mainstay and domestic and international circulations reinforcing each other, specifically supports Hong Kong’s development into an international innovation and technology (I&T) centre and charts the new direction for Hong Kong’s I&T development.
At the Hong Kong Economic Summit 2023, Chief Executive John Lee Ka‑chiu pointed out that “in addition to finance, I&T is another important engine driving Hong Kong’s high‑quality economic development”. In his 2022 Policy Address, he put forth four major strategies for promoting Hong Kong’s I&T development, including improving the I&T ecosystem, expanding the I&T talent pool, developing a smart city and proactively integrating into the country’s overall development. Thanks to the support and joint efforts of various stakeholders, Hong Kong’s I&T ecosystem is becoming increasingly prosperous, fostering the sector’s steady growth in both quality and efficiency.
Start-up ecosystem
In recent years, the ever‑changing market environment has created all kinds of possibilities for people intending to start their own business. InvestHK’s 2022 Startup Survey1 showed that both the number of start‑ups and their staff numbers had reached record highs, with a total of 3,985 start‑ups employing 14,932 staff. Meanwhile, co‑working spaces, incubators and accelerators in Hong Kong numbered 132, up 67% from 2018.
In building a complete and active start‑up ecosystem, stakeholders such as start‑ups, enterprises, angel investors and incubators all have an important role to play, and effective interaction among them is indispensable. Currently, a variety of entrepreneurship platforms and foundations in the market provide software and hardware support to promote scientific research collaborations and nurture Hong Kong’s industrial development. Universities, scientific research institutes and businesses are also leveraging their research strengths to build Hong Kong into an advanced research and development (R&D) centre and pilot transformation base, in order to promote industrialisation, commercialise scientific research, develop new industries and create premium employment and entrepreneurial opportunities. Many successful unicorns or start‑ups with “Hong Kong genes” have developed through local universities’ incubators and with the support of the resources and policies of the Hong Kong Science Park and Cyberport.
Government support
As the saying goes, “food and provisions should be made ready before an army charges ahead”. Capital is of crucial importance for entrepreneurs. In developing Hong Kong into an international I&T centre, the HKSAR government is working on all fronts including developing the I&T infrastructure, promoting R&D, attracting talent, supporting enterprises, promoting re‑industrialisation, strengthening support for scientific research and the industrial sector, and establishing I&T as the way forward for Hong Kong’s long‑term sustainable development. To ensure adequate funding for the sector, the HKSAR government has launched a host of funding schemes to support various I&T initiatives. To date, a commitment of over HK$100 billion has been made.
In 2017 the government set up a HK$2 billion Innovation and Technology Venture Fund (ITVF) to attract funds to co‑invest in local I&T start‑ups and create a more vibrant I&T environment in Hong Kong. A co‑investment model is adopted whereby partners are responsible for proposing suitable investee companies to the Innovation and Technology Commission, which will co‑invest with these partners in eligible start‑ups at a matching ratio of appropriately 1:2.
By October 2022, the government has co‑invested in 27 local I&T start‑ups through the ITVF and in association with partners. The government’s investment has amounted to approximately HK$200 million, attracting around HK$1.7 billion in private investment. The business areas of these I&T start‑ups include supply chain management, e‑commerce, financial technology, biotechnology and artificial intelligence.2
In 2015 the Hong Kong Science and Technology Parks (HKSTP), Hong Kong’s largest I&T ecosystem, set up the HKSTP Venture Fund. The fund is now managing assets worth HK$600 million and has successfully nurtured a number of excellent local start‑ups over the years. Since 2017, companies based at the HKSTP have raised HK$80.2 billion. During the Covid-19 pandemic between 2020 and 2022, the HKSTP supported over 1,000 companies, with assistance provided in diverse forms to start‑ups at different stages of development. These interventions include the Ideation Programme which focuses on funding support and early‑stage assistance to start‑ups, and the Acceleration Programme which helps start‑ups further their business and fast‑track their global expansion.
Another stakeholder, Cyberport, is an innovative digital community and technology hub committed to promoting the development of artificial intelligence, big data, blockchain and other technologies in the city. It has established the Cyberport Accelerator Support Programme, the Cyberport Macro Fund, and other support programmes to prepare Cyberport incubatees and alumni for expanding into international markets and investment.
As regards support for R&D, in addition to existing programmes like the Enhanced Tax Reduction for Research and Development Expenditures and the Research and Development Cash Rebate Scheme, the Chief Executive in his 2022 Policy Address announced the establishment of a HK$10 billion Research, Academic and Industry Sectors One-Plus Scheme (RAISe+ Scheme) to fund on a matching basis at least 100 university research teams with good potential to commercialise R&D and develop start‑ups. The policy will be implemented in 2023 and is expected to further accelerate cooperation between the academic and industrial sectors and improve the I&T environment.
♦In promoting the development of technology industries, hardware resources such as land and laboratories are of utmost importance. The HKSAR government is supporting the development of research infrastructure and innovation centres for industrial technologies. The following are some relevant measures:
♦Supporting the construction of the Hong Kong-Shenzhen Innovation and Technology Park (HSITP);
♦Supporting the development of the five R&D centres established by the HKSAR government, namely the Hong Kong Automotive Platforms and Application Systems R&D Centre, Hong Kong Applied Science and Technology Research Institute, Hong Kong Research Institute of Textiles and Apparel, Logistics and Supply Chain MultiTech R&D Centre, and Nano and Advanced Materials Institute, as well as the HKSTP, Cyberport and state key laboratories;
♦Cultivating industrial technology innovation platforms and manufacturing innovation centres.
Venture funding
In addition to government subsidy programmes, many start‑ups in Hong Kong are financed by private venture funds, which provide strong financial backing to start‑ups and actively contribute to the development of Hong Kong’s start‑up ecosystem. Last year, Forbes Asia announced the Forbes Asia 100 to Watch 2022 based on metrics such as a positive impact on the region or industry, a track record of strong revenue growth or ability to attract funding, promising business prospects, start‑up concept and a persuasive story. The list includes 16 Hong Kong start‑ups, whose major investors include HKSTP, Alibaba Entrepreneurs Fund (AEF), Hong Kong University of Science and Technology (HKUST) and ParticleX.
A start‑up goes through several growth stages, and the funding required increases with each stage. Investment rounds are roughly divided into the pre‑seed round, seed round, pre‑A investment round, and series A, B and C funding rounds. In this series of articles, we will discuss the aims, operations and assessment criteria of venture funds such as AEF, ParticleX and HKX to inform start‑ups with funding needs and people wishing to start their own business.
Entrepreneurial atmosphere
Unleashing the potential of the I&T sector and its entrepreneurs has always been Hong Kong’s strategy in promoting the development of its start‑up ecosystem. Large‑scale international innovation competitions are a good way to encourage entrepreneurship and advance the development of the start‑up ecosystem. These activities connect local start‑ups with industry pioneers, angel investors, incubators and other start‑ups around the world, and provide them with a platform to exchange ideas and compare notes. Winners may be awarded venture capital or cash rewards as well as funding from corporate partners.
In recent years, entrepreneurship competitions have been expanding in Hong Kong with an increasing number of participating companies, regions and industries. Some of the bigger events including the HKSTP’s Elevator Pitch Competition (EPiC), AEF’s Jumpstarter and HKTDC’s Start-up Express have greatly enhanced the city’s I&T atmosphere.
- EPiC at HKSTP has become a major annual event for Hong Kong start-ups. The seventh EPiC this year (EPiC 2023) attracted 610 start-ups from 55 economies around the world. In this contest, participants pitch their innovative business ideas in a 60-second elevator ride to investors and business establishments from various parts of the world. This competition demonstrates how Hong Kong can use its unique strengths to pool innovative talent globally and translate top-notch science, technology and concepts into business plans. Through this contest, start-ups can effectively link up with Hong Kong’s I&T ecosystem. In EPiC 2023, for instance, participating start-ups were able to contact over 1,000 investors and 300 corporate partners, and the winners were awarded a total of US$5 million (approximately HK$39 million) in venture funding and cash prizes plus business matching and investment opportunities.
- AEF began hosting the Jumpstarter Global Pitch Competition in 2017. Through this competition, AEF showcases quality start-ups to enhance and promote Hong Kong’s start-up ecosystem and entrepreneurial spirit. During the Covid-19 pandemic, it became the world’s largest online contest of its kind. Last year, Jumpstarter 2022 took place online again in spite of the persistent pandemic and attracted the participation of over 600 start-ups from more than 60 countries and regions around the world. Besides awarding start-ups with as much as US$4 million (HK$31.2 million) in venture capital, the contest also brought them important rewards such as enhanced brand awareness and increased exposure.
- Start-up Express launched by HKTDC targets start-ups that offer innovative and technology products or solutions and have a strong desire to enter the international market. Ten local start-ups are selected each year and given help to expand their market, build their networks and find business partners through capacity building, experience-sharing, marketing, media publicity and investor networking. The programme is rich in content and in addition to attending workshops and brand-building events, participants will visit business activities locally, in the Greater Bay Area and overseas.
Support from investors, the market and society is crucial for the success of start‑ups. Hong Kong is an international finance and business exchange centre with rich resources. Its many advantages coupled with the government’s strong backing for I&T development and the city’s top‑notch research resources, efficient business environment and excellent geographical location, will enable Hong Kong to deepen its role as a super‑connector, offering innovation and I&T platforms and support facilities to both local and overseas innovators. Hong Kong will also serve as an important springboard for these innovators to enter the mainland or overseas markets and support them in exploring further development opportunities.
1 InvestHK’s 2022 Startup Survey
2 Amount of investment made by the Innovation and Technology Venture Fund
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