When Prenetics went public on the Nasdaq last month, there was a cause for celebration – not just for the Hong Kong-based genetics and diagnostics health testing start-up, but for start-ups in Hong Kong. It offered renewed hope for the city’s position as a start-up hub, and for its start-up community, which have been rocked by uncertainty in recent years.
One of the main challenges has been the COVID-19 pandemic and resultant travel restrictions, which has made it difficult to raise funds and bring in overseas talent, and prompting some to reconsider whether start-ups can still truly thrive in the city. “Hong Kong has a strong start-up community and a large number of start-ups – but very few have actually reached a stage when they can go public. There are currently challenges, given the COVID situation and volatile global capital markets,” highlights Prenetics’ Chief Financial Officer, Stephen Lo FCPA.
Prenetics is also Hong Kong’s first “unicorn,” which refers to a start-up worth upwards of US$1 billion, to be listed in the United States. Lo hopes the listing inspires entrepreneurs to persevere and proves to young people that they, too, can succeed in the innovation and technology (I&T) sector. “They should know that they can also be disruptors who use their knowledge to bring about positive change and make an impact on society.”
The company is one of thousands of tech start-ups capitalizing on the opportunities for growth in Hong Kong. Despite pandemic-related challenges and border closures, there are more start-ups than ever before in the city – with upwards of 3,700 start-ups in Hong Kong compared with just over 2,200 in 2017 – according to InvestHK’s 2021 Startup Survey. Increased government funding, such as more than HK$16 billion that will be allocated to I&T projects announced as part of Hong Kong’s Budget 2022-23, and upwards of HK$130 billion that has been invested in I&T development over recent years, has accelerated development in the I&T sector. This, coupled with long-existing factors such as the city’s strategic geographic location, diverse pool of talent, simple tax system and low tax rate, and ease in raising funds, continue to attract entrepreneurs worldwide.
These advantages make Hong Kong a prime breeding ground for start-ups in I&T in particular. According to the survey, the majority of start-ups in Hong Kong specialize in technology, including fintech, IT, data analytics, hardware, robotics, biotechnology and sustainable technology.
A strong starting point
Lo says start-ups are drawn to Hong Kong’s status as an international financial centre and availability of talent. “People don’t recognize the diversity of Hong Kong’s talent pool – we have people from around the world,” he says. “We have both a Chinese and English speaking community, and people who are educated locally and internationally. This is something unique.” This city’s talent, combined with its geographic location, present another key advantage, he adds. “Because Hong Kong is in the centre of East Asia, it makes it convenient for companies to cover the whole region in terms of time zones,” he says.
Stephen Phillips, Director-General of Investment Promotion at InvestHK, agrees, noting that Hong Kong’s proximity to Mainland China and its location within Asia Pacific provide a distinct advantage. “Hong Kong is a great place to headquarter a start-up – you’ve got the Hong Kong market, the scale of the Greater Bay Area (GBA) and wider China market, and access to ASEAN countries,” he says. “Through Hong Kong, start-ups are able to access different markets, capital and talent.”
Hong Kong is also home to more than 60 start-up incubators and accelerators, according to data from Tracxn Technologies Limited, an IT services company. Cyberport Hong Kong, which is managed by a company wholly-owned by the Hong Kong government, is home to the city’s largest fintech hub and provides tech start-ups with the boost needed to bring their products or services to the market through benefits such as seed funding, exposure to investors and customers, and office space.
Tech hubs like Cyberport are key to Hong Kong’s start-up ecosystem, and start-ups should utilize them, says its Chief Public Mission Officer Eric Chan, as they also have the premises to test, support and invest in a company’s products. “With over 1,800 companies in our community, Cyberport is an I&T hub. We have our own hotel, office buildings, co-working spaces, and a shopping arcade. Start-ups can also meet our needs as a community and business,” he says, explaining how Cyberport adopts start-up solutions for its infrastructure. “This allows us to be reference customers for start-ups. We also help connect start-ups to large enterprises, corporates or conglomerates.”
Another hub supporting the growth of start-ups is managed by statutory body, Hong Kong Science and Technology Parks Corporation, which as of April, has helped to nurture over 1,100 start-ups in I&T. It has seen two start-ups become unicorns, and one start-up successfully list on the Hong Kong Stock Exchange.
Chan says that Hong Kong’s start-up landscape has thrived over the years as a result of its support system of incubators and accelerators. “Back in 2014, there were no unicorns in Hong Kong,” he says. “Now, there are roughly 18 in the city, and six of them come from Cyberport. Over the past 18 years, we’ve supported over 1,000 tech start-ups with our entrepreneurship programmes.”
William Lam, Chief Executive Officer of iFinGate, a Cyberport-incubated start-up, says that by headquartering in the city, his company has been able to tap into talent and clients from around the region. “Being in Hong Kong has helped us to easily build our regional footprint,” Lam says. “Though we’re based in Hong Kong, we have clients in the GBA, Singapore, South Korea, Taiwan, Australia and the United Kingdom.”
Lam is aware that his start-up, which specializes in regulatory technology or RegTech, is operating in a niche field, but says that the city’s existing regulations and openness to tech solutions have helped the company to thrive. “Hong Kong is a very well-regulated economy and financial centre, and the market is well aware of compliance requirements,” he says, noting that initiatives from regulators such as the Hong Kong Monetary Authority (HKMA) have helped to boost the adoption of RegTech in recent years. For example, in June 2021, the HKMA launched the Regtech Adoption Practice Guide series, to provide banks with guidance on how to implement RegTech solutions. “This has helped us to grow our products more easily in Hong Kong,” he adds.
Honnus Cheung CPA, Founder of Mojodomo, a Cyberport-based fintech company with offices in Taiwan, Singapore and Ireland, says Hong Kong’s low tax rate and legal framework provide entrepreneurs with another incentive to set up in the city. “Hong Kong has always been a very business-friendly environment, and has maintained its low tax rate for many years,” says Cheung. The city’s corporate tax rate of 16.5 percent – which is lower than that of Mainland China, Singapore and Taiwan, for example – has indeed remained unchanged for almost 15 years. “Hong Kong’s simple tax system makes it easy for start-ups to understand what tax they need to pay,” she adds.
“Hong Kong is a great place to headquarter a start-up – you’ve got the Hong Kong market, the scale of the Greater Bay Area and wider China market, and access to ASEAN countries.”
Tapping into talent
Recent announcements seek to fortify Hong Kong’s status as an I&T hub within the GBA. In February, the government announced that as part of its Budget 2022-23, HK$100 billion will be set aside for its Northern Metropolis Plan. The project will see the development of a large metropolis near the Mainland China border over the next 15 years and, within it, a 240-hectare plot of land dedicated to a technology hub called the San Tin Technopole, which hopes to create some 150,000 jobs in the I&T sector.
Lam welcomes the idea, noting that the development will allow start-ups to access talent across the border and better leverage the vast opportunities for business expansion within the Mainland. “By hiring talent from the GBA, who may have a better understanding of the GBA market and connections in the Mainland, start-ups will be able to roll out products and services in the GBA more effectively,” he adds.
The potential for growth within the GBA is immense, adds Chan, noting that start-ups need to leverage Hong Kong’s proximity to the Mainland to access more opportunities. “Though many start-ups may think Hong Kong is too small for them to grow or become a unicorn, the GBA will provide them with more potential to expand and tap into its population of 86 million people and a slice of its GDP, which was 12 trillion yuan in 2021. This presents a huge market for start-ups.”
Attracting and retaining the best talent is especially important, says Cheung, who notes that Hong Kong is experiencing a talent shortage in the tech sector. “People with technical skills in digitalization and tech are in demand globally – not just in Hong Kong,” she says.
To cope with the lack of supply, Cheung’s start-up decided to look beyond the city and tap into the availability of remote workers elsewhere. “I know a lot of companies that are considering outsourcing their tech or research and development (R&D) functions,” she says, noting that her start-up ended up outsourcing its IT function to Taiwan. “There is more IT talent in places like Taiwan and Vietnam; more students choose to become developers in those places.”
In addition to providing more robust facilities, Phillips believes that the San Tin Technopole will see Hong Kong act as a key connector between start-ups in the GBA and international markets. “It will provide start-ups with more space, high quality facilities such as labs, and also housing for key talent,” he says. “The Northern Metropolis is inextricably linked with the development of the GBA as a whole. This means it will provide more start-ups with the space to continue growing; they’ll be able to leverage the international status of Hong Kong and grow and scale within the GBA.”
Lo believes the development of the San Tin Technopole will ultimately help to diversify Hong Kong’s economy. “The city can’t simply focus on its real estate or financial services sector forever. We need different jobs and opportunities for people today and the next generation,” he says. “Tech and transformation is very important for the overall economy. If you fail to innovate and fail to drive progress, you’ll lose out in this global competition.”
A need to adapt
Cheung says that the main impediment Hong Kong’s businesses and start-ups still face is the city’s mandatory seven-day quarantine for all incoming residents and travellers. This, she says, makes it difficult for entrepreneurs to meet potential investors or partners in person. “Travelling in and around Asia Pacific was very easy before the pandemic, making it easy for businesses to raise funds and conclude business deals in an effective and productive manner,” she says.
Though meetings can take place virtually, they lack the personal touch that comes with in-person meetings, which Cheung stresses is key to building long-term trust with investors and partners who may be interested in a start-up’s products or services. “Say a start-up needs to demonstrate a new product, conduct an on-site company visit, or meet investors in person for a deal. Though it’s possible to meet via Zoom, it will never replace a face-to-face meeting,” she says. “It’s not a major disadvantage, but definitely a hindrance when it comes to networking or knowledge exchange. As a start-up founder myself, it’s important that I’m able to set up or oversee things in person.”
Start-ups are also operating in unprecedented times, which presents additional risks, notes Phillips. “Clearly, the world is facing geopolitical challenges now, whether it’s in this region or the Russia-Ukraine conflict and the wider ramifications that they bring,” he points out. Some younger entrepreneurs may not have developed the skills and knowledge in effectively navigating complex environments the way larger corporations may be accustomed to, he adds. “Inflation is rising sharply in many places and interest rates have been going up. Very few people in the start-up environment will have experienced such a complex and inflationary environment like this before.”
The economic slump is having a knock-on effect on start-ups, Lam explains, which is leading to dampened investor sentiment. “The world is going through a period of ‘stagflation’ now,” he says, referring to an economy with high unemployment and little to no growth even as prices are rising faster than normal. “Under this situation, start-ups have to be aware that investors and clients may be more sceptical and want to know that they are investing in a company that will guarantee returns.”
However, Lam points out the global economic slowdown may create opportunities for start-ups in the I&T sector. “The need for efficiency and automation may also create more demand. Clients and investors may seek products that are efficient, able to automate tasks, and could potentially reduce their headcount or processes.”
Despite the current challenges, Phillips says start-ups tend to be better at dealing with uncertainty due to their smaller size and higher degree of flexibility to pivot the business. “For example, many start-ups have been able to cope with the challenges brought about by COVID in a much swifter way than some of the larger companies,” he says. “Of course, this has meant changing their strategies, focus and priorities in a proactive and agile way to cope with and, indeed, leverage disruption and change.”
“Start-ups have to be aware that investors and clients may be more sceptical and want to know that they are investing in a company that will guarantee returns.”
With the pandemic changing employees’ attitudes towards where, when and how to work, start-ups should embrace flexible working arrangements and in doing so, provide the right tools to facilitate it, says Lam. “Start-ups should have the right infrastructure in place in order to support remote work so that tasks can safely be done anywhere. This will help start-ups to attract more talent,” he says.
Lo agrees, adding that the pandemic has opened up a new “global” talent pool, which entrepreneurs should utilize. “The pandemic has accelerated digital transformation and forced leaders to rethink how they should manage their talent,” he says, quoting Brian Chesky, the Chief Executive Officer of Airbnb, Inc, who in April tweeted: “Companies will be at a significant disadvantage if they limit their talent pool to a commuting radius around their offices. The best people live everywhere.” Though Lo says Prenetics doesn’t plan on having a fully remote team just yet, he notes that it is up to start-ups to reconsider how they source talent and leverage the situation to their advantage.
However, Phillips strikes a note of caution and says that start-ups should aim to strike a balance between flexible working and in-person teamwork. “Building an innovation-led business requires an extraordinary amount of collaboration and commitment. People are so critical and still need to speak and bounce ideas off each other in person,” he says. Though there are online collaboration tools to support this, Phillips draws on his own start-up experience and says it won’t be the same as in-person collaboration. “I can see why entrepreneurs are facing a bit of a conundrum now between working trends and building a successful business.”
To retain talent, Chan says entrepreneurs need to find new ways to build a sense of loyalty among their staff as they continue working remotely. “Young people want to invest their time in companies that invest in them,” he says. “By introducing a training and development programme, start-ups can demonstrate this commitment to their staff. They could also consider supporting employees who are pursuing or furthering their education.” Chan adds that Cyberport also provides relevant training to start-ups through its Cyberport Academy.
“Young people want to invest their time in companies that invest in them.”
All’s well that starts well
As Hong Kong continues to pique the interest of entrepreneurs and talent globally, it is important that start-up leaders perform the relevant research and planning before setting up a business in the city. Doing so will help to ensure long-term growth and future relevance, says Phillips. “Entrepreneurs need to prepare well. This involves testing the market. There is a wealth of support and advice available, including from InvestHK. I encourage entrepreneurs to use it.”
Start-ups need to have a solid “go-to-market” strategy, an action plan that specifies how a company will reach target customers and achieve a competitive advantage. This involves a well-thought-out marketing plan and sales strategy. “Some start-ups have really good technologies and ideas, as well as strong R&D and tech teams, but they may not have the right go-to-market strategy. Or, their products thrive in the market for only one or two years before becoming obsolete,” he says. To prevent this from happening, start-ups should constantly be testing their products on select customers during the development stage. “So when the products eventually roll out, they’ll be able to meet market needs.”
Lo believes Hong Kong’s tech start-ups and start-up communities will continue flourishing. Pursuing and pushing for innovation, he says, will help the city maintain its relevance and continue attracting only the best talent for generations to come. “A city is a sum of its industries and its people. With great talent and industries, it will thrive. But if the city doesn’t innovate or change, it will eventually become irrelevant,” he cautions. “The pace of digital disruption has increased, and Hong Kong has to be at the cutting edge of innovation – this will ensure that it remains competitive on a global scale and maintains its role as an international city in Asia.”
There are more than 3,700 start-ups in Hong Kong compared with just over 2,200 in 2017, according to InvestHK’s 2021 Startup Survey. The majority of them specialize in technology, including fintech, IT, data analytics, hardware, robotics, biotechnology and sustainable technology.