Hong Kong startups have had to adjust their operating models during this year’s pandemic, but they’ve been nearly twice as likely as more-established and older companies to see increased demand for their products and services as a result of Covid-19, according to a report released Wednesday.
The report, titled Transforming Hong Kong Through Entrepreneurship: Third Edition, is based on a joint survey done by KPMG and the Alibaba Hong Kong Entrepreneurs Fund (AEF). It assesses the state of development of Hong Kong’s entrepreneurial ecosystem in the context of the ongoing pandemic and identifies further areas for improvement. The survey responses came from 134 entrepreneurs and executives at startups, along with 200 corporate executives and 866 university students, all Hong Kong-based.
Some 34% of the startups surveyed reported more demand for their products and services during the pandemic, versus 19% of more-established companies. The younger companies were also less likely to have had to scale back their operations or put plans on hold, with only 29% reporting that was necessary, compared with 40% of the corporates surveyed. And 46% of startups are either collaborating to develop new products or services as a result of the pandemic or are assisting the government in its response to it.
Despite Covid disrupting daily life and dominating headlines for most of the year, it didn’t hurt the ability of startups to raise money. The number of private venture capital deals in the 2019-2020 fiscal year ended March 31, 2020 rose to an all-time high, with 140 deals resulting in HK$10.89 billion invested. Hong Kong startups continued to attract large-sized investments, with the HK$3.29 billion raised during the fiscal year accounting for nearly one-third the total capital invested.
Government funding for startups nearly doubled to HK$8.27 billion during the period from HK$4.47 billion a year earlier. All told, over 540 startups benefited from government venture capital funding, grands and incubation programs.
“To build on the efforts that both the public and private sectors have been making over the last few years to support the entrepreneurial ecosystem in Hong Kong, it is very important to continue to support growth-stage start-ups,” said AEF Executive Director Cindy Chow.
Chow noted the importance of raising the financing bar, both in terms of size and types of investments for the future of entrepreneurialism in Hong Kong.
“In particular, we need to attract more investors who are interested in providing beyond Series A venture capital funding and supporting start-ups to expand to the Greater Bay Area. We should also think about different ways of financing, including venture debt, which is still not very common in Hong Kong,” Chow said.
The 36-page report focuses a lot on the agility of startups as a positive distinction from their more-established corporate brethren.
Startups were more likely than larger corporates to enter new markets during the pandemic, with 49% focused on regional or global expansion, versus 33% of corporates. At the same time, 66% have a focus on research and development to drive product or service innovation, well above the 44% of older companies surveyed. The agility means they’re able to quickly adapt to a rapidly changing market and consumer demand.
And startups are more-focused than more-established companies on developing digital capabilities, with 61% intent on increasing online sales channels, compared with 48% of corporates.
Drilling down by sector, fintech, “smart city” and artificial intelligence-focused startups have attracted over half the private venture capital and government funding in the past three years. Biotech has also attracted a significant amount of government funding over the past seven years.
While 70% of startup respondents and 61% of corporates say Hong Kong is a fintech innovation hub, less than half see it as a center for “smart city,” AI, robotics and biotech – highlighting that there’s more support needed in those areas.
“While fintech continues to dominate Hong Kong’s entrepreneur scene, we suggest other priority innovation sectors, including biotechnology, smart city, artificial intelligence and robotics could be better supported,” said KPMG China Partner Irene Chu. “More attention should also be given to developing a more robust technology transfer infrastructure to help commercialize Hong Kong’s strong academic research capabilities. Government regulation also has a key role to play in creating optimal conditions for Hong Kong startups to thrive.”
The full report is available here.