Is Hong Kong really facing a Series A crunch?
Had a great chat with a reporter yesterday. Hong Kong’s annual Policy Address is coming out next Wednesday, and there’s word out that the Government will set up a co-investment fund, in the order of hundreds of millions HKD, for local startups who have reached Series A.
How it might work is that for any dollar a private investor commits, the government may match another dollar (or, two-to-one, details pending). Investors can be overseas or local.
To me this potentially solves two problems: 1) That Startups in Hong Kong have struggled to find investors to invest at Series A stage (typically US$1M to $6M in the Hong Kong market); 2) That overseas investors “skip” Hong Kong in their Asia tour due to the lacklustre performance of Hong Kong startup equity in the past, as an asset class.
I’ve even heard investors ignoring Hong Kong startups and go straight to Shenzhen or SEA. So much for East meets West.
While more money pumped into the eco-system is a good thing, government money will hardly be the make or break of Hong Kong’s Startup scene. Hong Kong is already one of the wealthiest cities in the world, with many earning a steady passive income from property and private equity.
What’s more important is that these local pockets of money get activated and transferred into local Startups. There is a mismatch between local wealth and local Startups. It is unfortunate that most investors of the biggest deals in the Hong Kong Startup scene have come from abroad, not because Hong Kong lacks money, but because potential local investors have missed out on these deals.
This fear of losing out on a good deal, rather than the fear of making a bad investment, should drive investor mentality, and the government should aggressively promote this shift, especially for UHNW individuals wanting to diversify their portfolios a bit.
Giving local investors the courage to not miss out on good local deals should be the main focus of policy.