Alibaba Hong Kong Entrepreneurs Fund is a not-for-profit initiative launched by Alibaba Group in 2015. The Fund’s mission is to help Hong Kong-based entrepreneurs and young people realize their dreams and visions for their businesses and communities. Cindy CHOW is the Executive Director of the Alibaba Hong Kong Entrepreneurs Fund and also an HKUST MBA alumna. She shares her thoughts on entrepreneurship and the findings of a study jointly conducted by the Fund and KPMG China that examines the landscape in Hong Kong.
Entrepreneurship is one of the core values of Alibaba. We believe that entrepreneurship can be applied not only to one’s business venture, but also to one’s life. The boldness of exploring outside of one’s comfort zone and harnessing creativity is the basic ingredient for Hong Kong’s younger generation to keep the city vibrant and competitive. The Alibaba Hong Kong Entrepreneurs Fund (AEF), on which I serve as Executive Director, is committed to building Hong Kong’s entrepreneurial landscape.
In July, we released the second edition of Transforming Hong Kong Through Entrepreneurship [1] – a study that AEF conducted with KPMG China. Through surveys on startup founders, university students as well as face-to-face interviews with key opinion leaders in the ecosystem, we wanted to gain insights into the current landscape, and look at how we could help Hong Kong remain vibrant as an international city. Below are some key insights worth noting.
Targeted support for growth stage ventures and emerging sectors
Percentage of entrepreneurs who agree or strongly agree Hong Kong’s startup landscape is dynamic and vibrant
Firstly, 70 per cent of entrepreneurs surveyed agreed that Hong Kong is a dynamic and vibrant startup location. However, there is a notable difference in how early stage entrepreneurs (86 per cent) and growth-stage entrepreneurs (59 per cent) rated the city’s startup landscape. Sixty-seven per cent agreed that Hong Kong is well positioned as a fintech innovation hub. Less than half the respondents think that Hong Kong is well-positioned for the other three sectors that the government has identified for development, namely biotech, artificial intelligence and smart city.
Since the Entrepreneurs Fund began, we have focused on investing in the startups that are raising Series A funding – a stage when the company normally has a product and needs capital to scale. Although I notice more individual investors and family offices are interested in investing in startups that adopt new technology or offer ground-breaking solutions, there is often a lack of investors for Series A or B financing in Hong Kong. Startups are often required to go overseas in order to raise these rounds. This is challenging if the startups have been focusing exclusively on the local market, because overseas investors would be looking for a much-extended market instead of just Hong Kong.
If I look at the mix of companies in our Fund’s portfolio, about one-fourth are fintech-related companies. Our Fund’s investment strategy is sector agnostic, but just like any venture investors, when we select investment opportunities, we often look at how the startup’s product can solve a problem that has a meaningful market to scale. As an important financial hub for the last two decades, Hong Kong has nurtured and attracted a good number of talents in finance who have first-hand knowledge of the problems or opportunities under the current system. They are more likely to come up with products that have a readily available market.
The findings suggest that both government and private sectors should expand their support to better cover growth and mature stage startups and divert more resources and efforts, like policy updates, to facilitate the progress of the other emerging sectors. Although entrepreneurs surveyed agree that there is increasing support such as co-working spaces, pitching competitions and mentoring, early stage startups tend to use these services more, and find them more effective.
Improve education to access to funding and opportunities
Secondly, the study finds that entrepreneurs rate themselves highly on their startup skills and are ambitious about the long-term growth of their venture, but perceive gaps in access to capital. Thirty per cent of entrepreneurs surveyed expect to have sales of more than HK$100 million by 2025, compared with three per cent who predict they will reach the same figure within the next three years. Seventy per cent of entrepreneurs surveyed use their personal savings to fund their business. However, the situation is expected to improve, with 80 per cent of those surveyed expecting to be using venture capital (VC) funding in three years’ time.
The study also analyzed the capital investment in Hong Kong-based startups over the past six years, and found that the venture capital ecosystem is maturing – a 20-fold increase in total capital invested into Hong Kong based startups and a 35-fold increase for average deal size for capital from private venture capitalists.
Tapping into professional investors for capital not only helps startups to scale up more quickly, but also drives them to increase their focus on their business model from the outset, including building a realistic financial model with supportable and realistic assumptions. In order to successfully gain support from VC, founders could consider enlisting experienced mentors to provide assistance before commencing capital raising. Mentors can play an important role in helping founders understand viable business models, the value and role of funding sources, and where to start. Mentors can also help entrepreneurs capitalize on opportunities in new markets like the Greater Bay Area (GBA) which is selected as the top place to start a business in the long term by the students surveyed.
Source: KPMG survey analysis
Note: respondents could select their top three choices; partial list shown
Nurture an entrepreneurial mindset and culture
Thirdly, the study identifies that the talent accessible to Hong Kong startups is improving. But this remains a key challenge, particularly for growth-stage companies. Only 44 per cent of entrepreneurs surveyed agree it is easy to find staff who have an entrepreneurial mindset – unchanged from last year. In some respects, this may be attributed to the lack of support to entrepreneurship in the community. Less than half of entrepreneurs in this year’s study agree that entrepreneurship is a well-respected career path, despite the fact that a majority (87 per cent) think it is feasible and sustainable. Further to that, only 21 per cent of entrepreneurs and 16 per cent of students surveyed agree that parents in Hong Kong are happy to encourage their children to start a company – a similar result was found in last year’s survey.
Startups provide Hong Kong with a unique value by driving innovation and technology. Creating a greater diversity of career options will help the city’s next generation tap into their creativity and access their ambitions. Hong Kong’s government should use its resources to raise awareness around the importance of startups. Furthermore, multinationals and corporates working with Hong Kong-based startups should be more proactive in sharing information about those startups with the wider community. This will help startups grow and find the mentorship that is essential to them – and the government can also play a role by encouraging corporates to share these stories.
The last two decades show that Hong Kong’s economy relies heavily on industries including real estate, financial, and professional services. When I graduated in the 90s, it was uncommon to have friends starting a business, instead of looking for a management trainee position at either a bank or an established organization. Being an entrepreneur is about investing time and money in something that might fail, and the culture of accepting failure was not welcome then. Although I have seen a recent change, this culture of accepting failure must be strengthened and an awareness of it must be built into all levels of the community.
The AEF was launched in 2015 as a non-profit initiative of the Alibaba Group. Our Group pledged HK$1 billion to set up this Fund and help entrepreneurs get off the ground through our investments. We hope that some of the startups that we invest in will become successful and can provide a “hero effect” that inspires more young people to venture out of their comfort zones.
After running the Fund for a year, and investing in a handful of outstanding Hong Kong startups, I realize that many of my friends are still not aware of what I am advocating, nor do they understand how the startup ecosystem works. Therefore, in 2017, our Fund curated the JUMPSTARTER [2] startup event – a platform which allows entrepreneurs and young people to showcase their products to investors, corporates and more importantly to the public, to help them better understand the ecosystem. JUMPSTARTER has been running for two years, and in its second run in January this year we gained the support of over 30 corporates and an audience of 10,000. We aim to use this platform to better engage people from all walks of life and encourage them to spend time understanding the value of entrepreneurship. We want Hong Kong to eventually give more support to the younger generation as they venture out from the more traditional path that our society previously adopted.
For more information about the Alibaba Hong Kong Entrepreneurs Fund, please visit www.ent-fund.org.
Next steps
Our city is striving to become an international innovation and technology hub. Hong Kong is actively exploring where its greatest strengths and competitive advantages lie in the context of the new economy, and how it can leverage those strengths to generate growth and opportunities. To move forward on this journey, we need contributions from everyone, including all my fellow alumni from HKUST, to act as mentors to startups that need input on various aspects of running a business; to be a supportive parent if your child wants to venture out to start his/her own business; or even just to participate in various startup events to learn, understand and cheer on our future generations.
Reference
[1] Transforming Hong Kong through Entrepreneurship is a study jointly launched by Alibaba Hong Kong Entrepreneurs Fund and KPMG China. The full report can be downloaded from: https://www.ent-fund.org/en/joint-study2019
[2] JUMPSTARTER is the largest home-grown startup event in Hong Kong. JUMPSTARTER 2020 will be in a format of global pitch competition with the final to be held in Hong Kong on 11 & 12 February 2020.