The head of StartmeupHK speaks about the startup ecosystem in Hong Kong, and how COVID-19 is influencing startups’ business models and investor preferences
Hong Kong has traditionally been one of Asia’s pre-eminent venture capital hubs, but what does the future hold for investors and its startups, given the changes it is witnessing? It is seeing a third wave of coronavirus infections after being seen as a success story not too long ago, and is experiencing rapid political change, which culminated in the passing of a controversial new national security law.
How will all of this impact investor appetite? In an interview with Unravel, Jayne Chan, the head of StartmeupHK, which is an InvestHK initiative aimed at promoting Hong Kong as a startup destination, says while the pandemic has challenged startups and investors alike, it is business as usual for the industry. She also talks about venture capital investment trends, evolving startup models and the impacts of the Limited Partnership Fund Bill.
Unravel: How has COVID-19 impacted venture capital investing in Asia (in terms of numbers)?
Jayne Chan: The pandemic is a global issue that affects everyone. With strong anti-pandemic measures in place, Hong Kong is among regions that have the best control over the pandemic. Admittedly, the business environment has been challenging for all industries in 2020, and that includes the startup sector, but with challenges come opportunities and we are seeing some companies pivoting to take advantage.
Amidst the pandemic, fundraising activities for some startups have still been going on as usual. venture capital investment in Asia remained steady quarter-over-quarter at $16.9 billion across 1,011 deals in the second quarter of 2020, according to KPMG. In Hong Kong, fintech startup Oriente and power bank sharing service ChargeSPOT raised $50 million and $38 million in April and June respectively. Australian-grown fintech unicorn Airwallex also raised $160 million in April 2020.
Unravel: Any trends you’ve noticed in Hong Kong?
Ms Chan: Digitalisation is one of the major trends in the startup scene in Hong Kong in recent years. The pandemic has undoubtedly accelerated the change. Startups that are able to switch their business focus quickly, such as moving their operations online, to take advantage of the pandemic situation have fared particularly well. Virtual conferencing software platforms, VR tour operators, telehealth companies and e-commerce companies are all good examples.
Another trend we’ve been seeing is the amount of interest by family offices and traditional companies in food technology, or foodtech, especially in the area of alternative meat. With Mainland China as a major market and consumers there choosing healthier alternatives, companies in Hong Kong are scrambling to find tasty and healthy options to cater to the market there.
Startups that are able to switch their business focus quickly, such as moving their operations online, to take advantage of the pandemic situation have fared particularly well.
Unravel: How is the recently passed Limited Partnership Fund Bill expected to impact the venture capital industry in Hong Kong?
Ms Chan: It is certainly welcoming news for private equity and venture capital funds looking to set up and operate in Hong Kong, and those who are already running their businesses here.
The new Limited Partnership Fund regime is expected to attract more private funds and family offices to Hong Kong, and accelerate the development of the asset management industry. It will also drive up demand for capital, talent and expertise into different sectors including technology and professional services, and hence further strengthen the Hong Kong startup ecosystem.
Unravel: Do you think the imposition of the new security law in Hong Kong will impact investor appetite?
Ms Chan: For the business community, Hong Kong remains the same place where we uphold the rule of law, freedom, and the most competitive and the freest market. Upholding national security and the rule of law in Hong Kong is the cornerstone of continued prosperity and ensures the long-term stability and safety of Hong Kong. This will afford Hong Kong residents the peace of mind to live and work here, as well as a stable environment in which business and investment may flourish.
The recent StartmeupHK Festival, held in early July, showed there’s still a strong interest in the startup community in Hong Kong. The virtual event hosted 471 speakers from 97 countries and territories, attracting a total of 181,770 attendees. The event also featured 199 exhibitors from all around the world.
Unravel: How is COVID-19 influencing startups’ business models from a cost savings and a revenue creation perspective?
Ms Chan: Remote working or service has become a new trend against the backdrop of the pandemic. Startups that are able to adopt quickly to this trend and capture the emerging opportunities are likely to be the winners in the long run. The experience of remote working at scale has demonstrated to many companies the benefits this brings. This holds true both from a revenue creation and from a cost savings perspective, and a level of adoption for this even after the pandemic is expected to remain.
Established companies are ramping up their virtual platforms to deliver products or services at a much faster rate, whether we’re talking about edtech or fintech, with the ultimate beneficiaries being the end consumers. We do expect to see some companies come out stronger of this pandemic and that will change the way we do things in the future.
Unravel: How is the pandemic impacting the investment preferences of venture capital funds?
Ms Chan: In essence, the process and criteria of startup investment have not changed – investors focus on companies with vast growth potential and are always interested in startups that are able to provide innovative solutions. One of the areas driving growth has been the interest of large investors in venture capital firms with strong portfolio companies in areas like gaming, virtual events and education platforms. They can actually take advantage of the COVID-19 situation.
In general, however, I think venture capital funds are getting more hands-on in supporting their portfolio companies to withstand current market situations, and ensure that they are ready to spring back quickly when the situation turns around.
The new Limited Partnership Fund regime is expected to attract more private funds and family offices to Hong Kong, and accelerate the development of the asset management industry.
One noticeable change coming from the restrictions in travel is the way investors are leveraging virtual events to scout for new deals. Our annual StartmeupHK Festival, which ran from 6 to 10 July this year, turned into a fully virtual experience, drawing close to 500 speakers from around the world.
Unravel: Are we seeing changing consumer behaviour and habits change the investment preferences/ outlook of venture capital funds towards digitally-driven business models?
Ms Chan: Startups are known for their ability to adapt, innovate and embrace changes. Some startups in Hong Kong have adapted to the situation quickly and provided in-demand solutions, such as virtual reality tours, e-commerce, food delivery and telehealth services. Meanwhile, a lot of companies have moved their daily operations online in response to changing consumer and work behaviour in recent years. The pandemic has expedited this process. We expect startups that provide goods and services around the overall trend of digitalisation to fare well in the years to come.
Unravel: Over the medium term, how will the development of the Greater Bay Area influence the region’s startup ecosystem?
Ms Chan: Given the integration of the Guangdong-Hong Kong-Macau Greater Bay Area, startups in Hong Kong can now reach a population of more than 70 million with a GDP of HK$11.9 trillion. The proximity of Hong Kong to innovation centres in Shenzhen and manufacturers in Zhongshan and Zhuhai gives it a unique position in the region.
Hong Kong will further capitalise on its advantages in R&D capabilities, technological infrastructure, its legal system and intellectual property framework to spearhead the innovation and technology industry, and act as a business platform for innovative companies looking to access Asian markets (China in particular), or innovative mainland Chinese companies looking to go global.
Hong Kong is the ideal testing ground and launchpad for startups, especially for mid-stage to mature startups, to expand and scale up. We, InvestHK, are here to support investors and startups to set up their businesses here.