Hong Kong is shaping up to become the new place to be for aspiring entrepreneurs from around the world. Karena Belin, co-founder of startup network W Hub, explains how and why..
Hong Kong’s startup ecosystem is booming. In 2015, the Global Startup Ecosystem Ranking 2015 issued by Compass* admitted Hong Kong within the world’s top 25 startup hubs for the first time. The exponential growth of the scene started only 2 years ago though, which allows it to be qualified as vibrant, but also still as young and relatively small. Different studies estimate the number of early- to late-stage tech startups reached 1,500 to 2,000 by mid 2015.
Hong Kong knows its entrepreneurial history has set up shop in the 21st century. Over the past months, celebrities such as Peter Thiel (co-founder of PayPal), Dave McClure (founder of global venture capital seed fund and business accelerator 500 Startups) and just recently Elon Musk (CEO of Tesla Motors, SpaceX, and co-founder of PayPal) visited the scene. The Web Summit, one of the biggest tech conferences in the world based out of Dublin, elected Hong Kong as the host for its first Asian sister conference, Rise, which attracted over 5,000 participants in July 2015.
Hong Kong leverages a long history in international trade and developed into one of the most important logistic centers and finance hubs in the world. Its many advantages include an efficient public sector and straightforward regulations, with rule of law and protection of intellectual property as a heritage from the British period – not to mention the abundance of professional services such as legal and accounting. Also, taxes are low and simple: there are no capital gains taxes; the highest personal tax bracket is 17%; the corporate tax rate is a flat tax of 16.5% on profits.
2. Neighborly relations
Hong Kong is referred to as being “the doorstep” to China. This does not imply that you will conquer the Chinese market out of Hong Kong: China has its own dynamics, from using different social media (WeChat and Weibo) to different trade structures and players.
However the advantage of the geographical closeness comes surely into play on the supply side. Just across the border, within a 1 hour drive from central Hong Kong, is the manufacturing hub of Shenzhen, often referred to as Nirvana by hardware focused companies. The variety of products and the speed of manufacturing are unrivalled. What takes 3 months in other parts of the world, including Silicon Valley, can be done within 3 weeks; startups can go from prototyping into production in less than a month.
Proximity also helps for design and testing. Those seeking exposure to Chinese consumers to test their MVPs can benefit from the tourism inbound that is over 45 million per year.
3. Focus on concentration
Even though the small size of Hong Kong’s population (only 7.2 million) may be considered as a disadvantage when it comes to market size and sales potential, it allows startups to penetrate the market fast and hence get a proof of concept very quickly.
Also, in a very concentrated environment, it only takes one key player on board as strategic partner to save a lot of money. Same for advertising: word of mouth via a good social media strategy often proves to be a winning choice. This comes as no surprise as more than half of the population is on Facebook and has on average a staggering 768 Facebook friends, which is nearly eight times the worldwide standard. And though being small, Hong Kong welcomes various cultures and nationalities, as a true melting pot where East meets West.
4. Easy ride
Setting up a business in Hong Kong is very simple – including for foreigners: English being an official language here, you can do business without knowing any Cantonese or Mandarin.
You can register your business within 1 day, even electronically from abroad. You can also get a bank account within 1 day, though that requires your physical presence. Getting an on-line presence under the “.hk” domain is no issue since your company name is protected, as the application process requires a business registration certificate.
Basically, you can look professional from day 1 – thanks also to virtual office services providing business address, phone and fax numbers, and staff to answer calls in English, Cantonese or Mandarin
5. Who’s got talent?
Hong Kong does not lack of fine universities, with at least 5 well-known options; but great positions, promising careers and high compensation attracted many great talent to the big, multinational and regional corporations, creating a risk-averse culture for local youth and higher switching costs for experienced individuals.
However, recent challenges and economic slow-downs are playing in favor of the startup community, while universities are reviving entrepreneurship centers, opening co-working spaces, organizing hackathons and creating mentorship networks.
6. Invest at best
Even though Hong Kong is not short of money with its great number of high-net-worth individuals, family offices and deep-pocketed financial institutions, some local investors still shy away from supporting Hong Kong based startups. One reason is certainly the lack of experience in the tech sector. Digging deeper, it is just because in the past, there have been better (safer and with higher returns) alternatives such as investment into real estate. Lastly, given the still young nature of the ecosystem, even famous investors such as Li Ka Shing are more known for the investments made abroad such as in the US and Israel.
Giving more visibility to the ecosystem’s achievements will help convert the money stream into the right direction – and this is the mission of W Hub.
7. Looking for the unicorn
Facebook, Google, PayPal in the US, Free, Meetic and VentePrivee in France, Rocket Internet in Germany: unicorns help develop the ecosystem by generating buzz and attention.
Some argue that the next big thing is yet to come in Hong Kong. But they overlook success stories in the past.
One amongst them was the acquisition of Divide, formerly Enterproid, by Google in May 2014 for 120 million USD. The Hong Kong, New York and London based startup, with one of its co-founders David Zhu being a Hong Kong native, provides a bring-your-own-device (BYOD) solution for corporate environments. Once downloaded, the app splits a phone into two modes: work, which can be controlled and monitored by a corporate IT department, and personal, which IT departments don't have access to, for regular enjoyment.
Another success story is Hong Kong based startup 9Gag with its Hong Kong founder Ray Chan. 9Gag is the largest website dedicated to funny contents and lets you create your fun collection effortlessly. It was the first startup to join the accelerator 500 Startups in the US and has been successfully seed funded with over 3 million USD back in 2012.
Not to mention 8Securities, one of Asia's most innovative and fastest growing online brokerages, with offices in Hong Kong and Tokyo, 50,000 customers across the globe and 1 billion USD in assets. Founder Mikaal Abdulla successfully raised 8 million USD in series A three years ago, followed by a series B of 9 million USD two years later.
Then in 2014, Aftership (a shipment tracking application for online retailers, supporting USPS, FedEx, DHL, UPS, EMS and over 200 carriers), Shopline (a localized e-commerce solution for merchants in Asia to launch their self-branded online shop quickly and easily) and Notey (a platform enabling to search and filter blogs in accordance with your preference) added to the list.
And the trend is not slowing down. In 2015, EasyVan by lalamove, GoGoVan and Boxful drove headlines about steep business growth and successful funding. GoGoVan, the Uber of logistics, recently raised 10 million USD in their second series B. Competitor EasyVan closed two rounds of 10 million USD, in January and September respectively. Meanwhile, boutique self-storage service Boxful raised 6.6 million USD in series A.
8. Diversity is the key
As the aforementioned examples show, the Hong Kong startup scene is very diverse, reflecting Hong Kong’s long history of trading and commerce, logistics, banking, real estate, tourism and luxury. The buzzy sectors that have recently given birth to hot new comers are fintech (noticeablywith Hong Kong’s first P2P lending platform and platforms in the area of bitcoin and trading), hardware and IoT (with Makerbay, a special co-working space applying the principles of open source to hardware), healthtech (with O2O platforms and smart devices), edutech (tapping into the huge market of education and tutoring in Asia) and logistics (including tracking, shipping and storage solutions).
Highlighting the exponential growth of the ecosystem, co-working spaces have mushroomed, going from less than 10 to nearly 50 over the last 18 months.
9. Full support from the society
An indicator with more structural and long-term impact is the appearance of accelerators and incubators. 18 months ago, there was mainly only one very active angel investment institution, operating alongside government-backed cyberport, HK Science and Technology Park & Innocenter. Now private accelerators operate in the sectors of IoT (brinc - co-founded by entrepreneurs previously in Silicon Valley and China), B2B (Swire backed), fintech (DBS backed), healthtech (AIA backed), and smartcity/IoT (Infinity backed). The number of startup competitions and hackathons has also seen a growth spurt, a popular one remaining the HK edition of Startup Weekend, co-organised by Matthieu Bodin (C11).
Acknowledging that innovation is key in this era of information revolution, which has the added spin-off of raising the productivity of other sectors and industries, the government is clearly putting more and more focus to support the attractiveness of Hong Kong as a tech startup hub. The word “startup” made its way into the annual budget declaration for the first time in 2015. Less than a year later in January 2016, Hong Kong chief executive CY Leung announced a new strategic thrust of focusing on IT with a HK$ 2 billion put aside to set up an Innovation and Technology Venture Fund for co-investing with private venture capital funds on a matching basis. Before in November 2015, Alibaba had announced the launch of a nonprofit venture capital fund of HK$ 1 billion to help startups in Hong Kong.
10. Welcome to Asia’s Silicon Valley
Arguably a bit late to the game compared to some of its Asian counterparts, Hong Kong now seems well positioned to win the race. Its proximity to China all by being a free trade and rule of law system will attract more startups, talent and investors from the West. China’s complex regulations for wholly foreign owned enterprises (WFOE) and restrictions to foreign ownership in China's Internet sector will further help looking for alternatives close to China, not in China. At the same time, startups currently present in China and looking to expand to the West take advantage of its smaller sister just next by. Shenzhen based startups collaborating with the West or having teams outside China benefit from a presence in Hong Kong since they do not face e-mail restrictions or difficulties when using tools and apps such as Google Drive, Dropbox or even Skype. And with the increase in quantity and quality of startups, as well as further successful exits, the confidence and availability of the existing local capital and capital from abroad will flow into the startup ecosystem, as historical alternatives will continue to show lower returns.
Karena Belin - ESSEC/University of Mannheim - has previously worked 15 years for Procter & Gamble in various roles in Finance, Sales, Strategy and Management across Europe, North East Asia and Greater China. She co-founded W Hub to help startups grow by making meaningful connections. W Hub has helped 600+ startups to gain more visibility, find talent and (for some) raise funding. She is active as speaker, mentor and judge: Chicago Booth Global NVC, Google EYE, Startup Weekend, local universities and government institutions. For more insights into the local startup scene, please visit the Hong Kong Startup Ecosystem Toolbox on whub.io.
*Excluding China, South Korea and Japan.