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Tuesday, January 12, 2016, 15:57

Entrepreneurs eager for venture capital boost

By Timothy Chui & Deng Yanzi/

Entrepreneurs eager for venture capital boost
Visitors and participants attend the Rise technology conference in Hong Kong on July 31, 2015.  (AFP PHOTO / Philippe Lopez)

HONG KONG – The expected announcement of a 50 percent matching grant for venture capital investment by Chief Executive Leung Chun-ying in his upcoming Policy Address on Wednesday represents yet another piece of the puzzle to reindustrialize Hong Kong through innovation and technology.

A government pledge to commit HK$1 for every HK$2 invested via venture capital could attract as much as HK$10 billion from the private sector if a HK$5 billion cash infusion into the Innovation and Technology Fund (ITF) this year serves as a benchmark for the administration's commitment to research and development.

More than 20 taxpayer-backed funding schemes are already available to high-tech entrepreneurs while Hong Kong’s current ITF strategy has provided dollar for dollar matching grants for research and development only.

Greater access to venture capital will make for more flexibility for entrepreneurs who would also benefit from the commercial experience and discipline, Hong Kong Venture Capital and Private Equity Association Executive Director Denis Tse said. Entrepreneurs could also deploy resources more effectively when tying strategic milestones with capital, Tse said.

While details will need to be fleshed out, such as who qualifies as a venture capitalist, the time is ripe with the market never bigger and more easily penetrated while the costs of failure have fallen and investors more savvy compared to 10 to 20 years ago, Kwong said.

The clearest benefit with the new matching grants is allowing investors to have a greater say in which companies receive taxpayers’ support.

The government lacked expertise in identifying companies worthy of investment, according to Hong Kong General Chamber of Young Entrepreneurs’ Rono Kwong, who advocates for those decisions to be in the hands of the market and relevant industries rather than the Fund’s government appointed committee.

Greater access to funds while lowering research and development’s cost of business is seen as a key driver for Hong Kong’s future economic development, with former University of Hong Kong vice-chancellor Tsui Lap-chee long calling for relaxed restrictions on granting funds for local projects.

The reindustrialization of Hong Kong remains the city’s long game, from the development of technology incubators more than a decade ago to the latest legislative showdowns over funding for the ITB and now the copyright bill.

"Central to the question is whether entrepreneurship can drive the economy like it did in the 1980s, by rolling up our sleeves into value creation and building and growing business rather than reinvesting proceeds into speculative activities,” HKVCA’s Kwong said.

"All the strategies [the government] is trying is to tie it together - uniting resources and coordinating pockets of expertise, mobilizing different agencies and the public to help reindustrialize the economy,” he said.

There were plenty of hidden gems waiting to be discovered in Hong Kong while others had gone unnoticed until gone, Kwong said, as in the case of darling drone company DJI.

The local technology sector constitutes 0.7 percent of the city’s GDP, compared to 2 percent in the Chinese mainland and Europe, according to former chief executive Tung Chee-hwa’s think tank.

By comparison, 4.5 percent of Shenzhen’s GDP is derived from the sector, while Shenzhen-based startups are already raising impressive sums without the help of the government, with drone newcomer Ehang raising HK$390 million thanks to Jenny Lee, managing partner of GGV Capital.

With the infrastructure and management finally in place, all what was left to propel Hong Kong’s research and development was a spark to really get things going, HKVCA’s Kwong said.

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