HONG KONG: Hong Kong will launch a fund worth HK$5 billion (23 billion baht) next month to support local tech companies and attract foreign start-ups, the city's finance chief has said.
Financial Secretary Paul Chan Mo-po told the South China Morning Post the government hoped the Strategic Tech Fund would fill the gap in series A and series B financing for start-ups and help convince investors to back projects by Hong Kong tech entrepreneurs.
Series A refers to a start-up's first major venture capital financing, while Series B refers to further and larger investments from corporations or institutional investors.
Countries such as China, the United States and Singapore have been rolling out measures to attract talent and money to their tech industry, with the latter's Temasek investment company injecting an estimated US$500 million into the city state's sector in the first half of last year.
In his budget speech in February, Chan announced the Strategic Tech Fund and said he would invite the Hong Kong Science and Technology Parks Corporation along with Cyberport to identify tech enterprises "of strategic value to Hong Kong, and investment opportunities conducive to enriching the technology ecosystem".
In an exclusive interview with the South China Morning Post on Monday, the secretary revealed preparation was almost finished and the fund would launch in August.
Chan, who joined the government as development chief in 2012 and was appointed financial secretary five years ago, noted that Hong Kong's two major technology parks, namely the Science Park and the Cyberport, already had seed funding for start-ups.
When companies grew to a certain size, the two parks would also work with venture capital funds to co-invest in the start-ups, he added.
The government had put measures in place to attract private equity funds to set up in Hong Kong to support these companies, Chan noted.
"In terms of IPO for biotech, I think we are the world's number two, just after the US, but there is a gap in Series B, Series A," he said, referring to the follow-up rounds of additional funding for the companies.
Chan said the government hoped the strategic tech fund would fill the gap between the two stages, boosting the financial strength and attractiveness of the start-ups.
"When these start-ups grow to a certain size, they want to further grow, they need bigger capital. If the government is able to make an investment, that will help them," he said. "[It's] not just money, but also the confidence … [and] enable them to raise funds with the other investors."
In 2020, Chan announced the establishment of the Hong Kong Growth Portfolio and appointed fund managers as general partners to make strategic investments. But the new fund would operate differently, he stressed. Rather than giving a mandate to general partners, an investment committee would be set up to identify new projects and Hong Kong's future unicorns, the secretary told the South China Morning Post.
"So it is Hong Kong unicorns hopefully, Hong Kong future unicorns, and also we will use this money to try to attract some of the foreign tech companies … to come to Hong Kong," he said.
New firms usually go through several stages of funding and financing. In the pre-seed or seed rounds, they will seek government grants or angel investors, but many often fail or close down at this stage. In Series A financing, a start-up that shows signs of success or ability to turn a profit will receive venture capital funding ranging from US$1 million to US$15 million.
But Series B is often the most challenging, according to analysts, as new companies with a sound business model seek larger investments, often in the range of dozens of million US dollars.
Eric Yeung Chuen-sing, an honorary president of Smart City Consortium, which offers advice to the government on innovation, said the strategic tech fund could help start-ups secure Series B and even Series C funding, which refers to financing after a company has achieved key milestones such as becoming profitable or seizing a significant market share.
"It is very difficult to find institutional investors for Series B funding, because not many Hong Kong investors or private equity funds are willing to put down such a large sum of money for a local start-up. It's good that the government is willing to co-invest with them," he said.
Hong Kong entrepreneur Ronald Tse Chi-hang, co-founder of health tech start-up MVisioner, also welcomed Chan's revelation.
"We're in the stage between Series A and B, and it's quite troublesome. We've already developed some products, but we don't have that much business data to convince investors to offer Series B financing," he said. "Its's like the ugly duckling fairy tale, and we've yet to become the swan."
Dominic Chan Chi-bong, an associate professor at the Chinese University of Hong Kong's business school, cautioned that since the strategic tech fund is set up with taxpayers' money, the government must be selective in supporting firms with real potential.
"Sometimes, companies fail to get Series B funding because they were unable to grow to the next stage, in such cases they may not qualify for the government's support either," he said.
