Despite poor weather leading up to the second GCV Asia Convention last month at the InterContinental Hong Kong, about 200 delegates attended the event, which was preceded by a two-day GCV Academy at KPMG’s offices. Paul Morris, head of the academy, led an interactive workshop with guest speakers who included corporate venturers from Asia and other parts of the world.
During the congress, Morris introduced Bernard Chan, undersecretary for the Hong Kong government’s Department of Commerce and Economic Development, and previously political assistant to the secretary for commerce and economic development.
Morris said: “Chan is no stranger to the technology sector. He has worked for 10 years in the sector with a particular focus on commercialisation of intellectual property, so he has a lot of experience in things that we are all interested in.”
Returning to the Asia Congress for the second year, Chan spoke on innovation and technology in Hong Kong, saying: “Hong Kong is actively embracing technology and innovation as the new impetus of economic growth. We have allocated more than $10bn to upgrade our technological infrastructure due to a vibrant ecosystem for startups and nurturing talent in Hong Kong. We will be focusing on four areas – biotech, smart city, fintech and artificial intelligence (AI) and big data analytics.”
Chan concluded his speech by remarking that Hong Kong was determined to become one of the world’s most desirable destinations for innovation and technology companies as part of the Greater Bay Area, covering Hong Kong, Shenzhen and Macau.
Jay Eum, co-founder and managing director at Translink Capital and co-chairman of this year’s congress, initiated the first discussion in the morning, saying how impressed he was with Hong Kong’s quick recovery from Typhoon Mangkhut, which hit Hong Kong a few days before the event.
Eum went on to talk about the recent trend in the industry. “One thing to note, compared with previous years, is the trend in corporate venture has clearly shifted not only from traditional technology companies being actively engaged in corporate ventures, but corporations from traditional industries that you would not necessarily think are on the leading edge of technology are now very much actively engaged in corporate venture activities and actively looking to partner innovative technologies.”
To begin this section – Asia’s corporate venturing insights – Eum affirmed: “You will see a mix of an automobile company, an insurance company, a real estate company and a traditional company join us on stage today to share some of their diverse insights.”
Eum then introduced panellists Takeshi Kodama of 31Ventures, Lee Sessions of Intel Capital, Sung Woo Shin of Hyundai Motor Company and Donald Lacey of the Ping An Voyager Fund.
Sessions said Intel Capital had invested in Asia over many years, investing $2bn in China alone, in more than 140 companies, 40 of them in China. He said: “We invest broadly in Intel Capital’s strategic interest in terms of value future growth and economic disparity.”
Sessions described how he come to his current post. “Wendell Brooks, president of Intel Capital, asked me to take on a new role last year where I am helping to enhance and deepen the network of corporate venture capital relationships. We realised that, just like it is the secret sauce for Intel Capital to add value post-investment, most of you have programs and processes in place to do the same thing.
“When we invest together, we do a better job for our portfolio companies – we look at what can do to help add value to those portfolio companies.”
Eum commented that, over his 18 years of corporate investing, Intel Capital had been the most collaborative corporate venture arm he had seen.
Shin introduced himself as head of corporate venture capital of Hyundai and a managing director of China Mobility Fund. He said: “Until last year, Hyundai’s CVC focus was on R&D, but starting this year, we have a more active role in digital transformation and leading new business models from different sectors.” Hyundai had been investing more globally in recent years in companies from countries such as Singapore, India, Israel and Australia.
Lacey, chief operating officer and managing director at the Ping An Voyager Fund, which invests in fintech and healthtech opportunities, primarily outside China, said Ping An was the largest insurance company in the world. One in every 1,000 people in China was a direct or indirect agent, and one in 10 was insured by the company.
The Voyager Fund had a history of building fintech and healthtech businesses at scale, such as Ping An Good Doctor, a telemedicine platform listed on Hong Kong Stock Exchange, on which some 200 million digital users could consult doctors. “That gives us an interesting scale and access to introduce new technologies, new capabilities that we find in different parts of the world,” Lacey said.
Takeshi Kodama, project manager at Japan-based real estate developer Mitsui Fudosan’s corporate venture capital arm 31Ventures, said his unit was founded in 2015 and made investments through its 31Ventures Global Innovation Fund in areas such as energy saving, power sensors, artificial intelligence and other background technologies.
He said that since 31Ventures’ inception “it has made 22 investments so far – half are located in Japan, four in the US, four in Israel, two in the UK and one in Singapore”.
Eum asked panellists: “Choose a portfolio company and explain why you thought it was an interesting opportunity, what exactly was the process and the result.”
Sessions said: “At Intel Capital, we developed several investment theses, and we look at that primarily through the lens of core technologies concerning the way data are collected, stored, secured and analysed.
“In one area, we recognise that China plays a critical role in cloud computing and we wanted to pursue potentially relevant opportunities that were unique to China and that could also have worldwide implications. This was particularly important to two of our Intel business units and this was based on our history of OpenStack implementation [an open-source software platform for cloud computing] over the past few years in China. We wanted to do the same thing with some of the emerging cloud technologies like containers. These are areas where there are great opportunities and we need to get into those markets.
“In this case we found Alauda, which optimised its container-based platform as a service solution on Intel’s architecture and for Intel’s products. By investing in Alauda we aim to optimise their container-based platform-as-a-service solution. We also make targeted customer market opportunity referrals. Alauda’s hybrid cloud management platform could be included as an “Intel selected solution” by a key business unit.
“The deal was referred to Intel Capital by AWCloud, an existing portfolio company that is focusing on OpenStack solutions. Tencent also invested in Alauda and obviously we can jointly do many things together to influence Chinese customers.
“Gerald Chen is the investment manager who did the deal in conjunction with some of our investment managers in the US that helped rope in some of our core technologies, help us evaluate the distinctiveness of the technology, but we actually did this as an eyes-and-ears deal because we thought it would be aligned as a strategic deal, but it was really something that we saw at the time as an emerging differentiator that we wanted to get to know and, much to our surprise, it turned into something that was really closely aligned to the business unit.
“So we often see things going in directions different from what you might have expected, good and bad, and sometimes ugly, but in this case, that was a very positive solution and we were able to help align them as we do with many of our companies.
He added: “We are attempting to invest in fewer deals and deploy more dollars per deal and to provide more targeted help to the companies that we invest in. In 2017 we invested $690m in 45 new and 43 follow-on companies. Wendell Brooks has been trying to get us to do 30 deals a year.”
Sessions said to add real value in a focused way meant doing fewer deals so more time and energy could be put into the growth prospects of the best companies.
Shin said: “Our corporate venturing philosophy at Hyundai is that we are purely strategic, and we need to align the corporates and the ecosystem. We need a stable triangle relationship – the business unit, corporate venturing and the ecosystem. Because we have our roots in Korea, it was challenging from the beginning to go global when we started corporate venturing. We asked for a lot of help from our venture capital partners to give us specific examples of how we tackle the US market together.
“When we first went to Silicon Valley, we did not have any network in the ecosystem. The relationship between the business unit and corporate venturing was very loose, so we asked someone from Samsung Venture to help us out. He knew about our situation and challenges, so he helped us navigate into the ecosystem of Silicon Valley.”
Shin said he believed artificial intelligence was becoming more significant. “If the computer processor is from Intel and memory from Samsung, who inputs the data? It is a human. Who interprets the input and output from computing? Also a human. However, we see a radical change happening in Silicon Valley. A lot of companies emerging from Silicon Valley focus on the use of semiconductors that collect information. And who is doing the interpretation now? Artificial intelligence is doing it.
“We are actively scouting those technologies. An example is SoundHound in the US. Cars can be radically changed with voice recognition innovation. We also invested in a chip company in Israel called Autotalks. Those are how we define the coherent goals that go with the business unit and then we execute globally to serve not only corporate venture capital needs but also business needs.”
Lacey added: “We benefited at Ping An from a real focus on innovation at the very top of the leadership, so we are very focused on finding interesting ideas that are likely to have scale-up capabilities and pursuing those even if there is not tremendous amount of alignment at the business unit level.
“We invested a while ago in Title Care, an Israel-based company building a little device we can buy for $100 that enables you at home to give your spouse, yourself, your child, your loved ones about 75% of what a doctor would do in a check-up. It is a device that will take your blood pressure, check your heart rate, and a camera with a light that will shine on your ear, shine on your nose, a statoscope and all of that information is streamed on to the cloud, digitised.
“If you happen to operate a very large telemedicine platform, you can take all that data and use it as a basis for a much more automated, effective and accurate triaging and diagnosis framework. That data also aggregates over time, so that sort of cloud-based framework that we can deploy at scale across Ping An Good Doctor, for instance, is a powerful combination.”
Lacey said he had chosen this example because it distilled the debates around alignment and whether it was done for strategic or financial reasons into one simple question: “Are we at Ping An going to be creating value at an investment beyond just a dollar value on the cheque that people are writing? If the answer to that question is yes, then we are enthusiastic about the investment, but if the answer is no, then we struggle to explain to ourselves why we ought to be good in it.”
Kodama expanded the topic by mentioning how 31Ventures invested in real estate: “In 2020, Tokyo will host the Olympic Games and there might be many cyberattacks in properties – office buildings, shopping malls, hotels and so on. These facilities and buildings are operated by non-standardised protocols like heating, ventilation, air conditioning, escalators, elevators, fire alarm systems – operated by different machine languages.
“We have 300 hospitals, around 20 shopping malls in Tokyo. In properties at Mitsui Fudosan, we partner a protocol company called Scadafence, an early startup with a modern system, Scada. We provide a safe, secure and stable systems to our customers, clients and residents.”
The overall theme of the congress was summed up by another session – Will Asia outsmart the rest of the world? – based on considering the so-called dragon and tiger economies use of corporate venturing to invest in technologies of the future.
Moderated by Gloria Liu, corporate partner at DLA Pier, the panellists were Gen Tsuchikawa, chief investment manager at Sony Innovation Fund, Srinivas Gattamneni, chief portfolio officer at Axiata Digital and CEO at Ada, and Jeffrey Li, managing partner at Tencent and the other congress co-chairman.
Liu started the discussion by asking how corporate venture was being used as a tool across different markets.
Gattamneni said: “Our focus is on Southeast Asia. They are segregated markets – you cannot aggregate them. Each country has its own regulations, and each one has different investment risks. And there are also very different digital innovation options. For instance, Bangladesh is different from Singapore and Indonesia.
“One of the things we considered was: how do we get into adjacencies using corporate venturing? One of the things we did five years ago was look at the different sectors we needed to be in as a corporate by 2020. We focused our investment very much on filling those key gaps in the value chain that we felt we had in our capability. The second thing that we did in markets like Cambodia, Sri Lanka and, more recently, Bangladesh, was use corporate venturing to kick off the startup ecosystem. In many cases, we even had to create fund management teams.”
Li then cited Tencent-backed group-buying platform Meituan-Dianping’s recent $4.2bn flotation in Hong Kong as evidence that corporate venture was being used as a coalition-building tool in China. “Our belief in the entrepreneurs actually leads to our supporting position when we make investments,” he said. “Tencent is keen on making investments in digital content, especially in the gaming sectors. China, with its population of 1.3 billion people, and being a single-currency single-language country, definitely helps startups to thrive in this market.”
Tsuchikawa added: “Japan’s venture market is around $4bn. Historically, it has been a bio-focused market, but with all the corporates coming in over the past two to three years, it has become a larger market.”
He said many of the major Japanese companies were embracing opportunities to build relationships and foster talent. When Sony Innovation Fund had returned to investing three years ago, initially it was thought the Japanese portion of the portfolio would be 5% to 10%, “but at the end of the day, we are finding many good opportunities and the Japanese portion has ended up being somewhere around 35%”.
He added: “Technology companies in Japan especially want to go global quickly, so we can help them extensively.”
Anson Bailey, KPMG’s head of technology in Hong Kong and head of consumer and retail in Asia-Pacific at KPMG China, who moderated the keynote discussion – Case study on HarbourVest’s partnership with Telstra Ventures – raised the issue of whether the globalisation that underpins much of the corporate venture capital flows and entrepreneurs expansion plans could be affected by talks of a trade war.
The day before the congress, US president Donald Trump had announced $300bn of new tariffs on China, and Alibaba’s co-founder and executive chairman, Jack Ma, had remarked this trade war could last for 20 years.
Bailey’s panel of Tim Flower, managing director at Harbour Vest, and Chris Pu, partner and head of greater China at Telstra Ventures said as the focus would remain on mainland China a trade war was not enough to stop it.
The global innovation corridor challenge was a discussion moderated by Ramy Farid, co-founder at Proseeder Technologies, between Martin -Haemmig, adjunct professor at Cetim and Glorad, and Xiaoyang Li, managing director and head of M&A and strategic investment at 58.com.
Haemmig said he had, for the past 15 years, been researching innovation in Asia. The four innovations that he looked at were technology, product, process and business model. He also showed the audience data on the internationalisation of startups and internationalisation of corporates.
He said: “Fewer and fewer corporates were acquiring their own portfolio companies, and it was only in the first half of this year that there was a massive swing back for the very first time in years. Why is that? It was because of artificial intelligence, machine learning, robotics and automation. That is a very clear domain in China and in Silicon Valley. That means the corporates are investing to get very early access to emerging markets.”
Li said: “The Chinese market is quite particular because of our culture. The business environment in China is quite different from western countries. So when companies want to go into the Chinese market, first they should respect the local management team and hire local people – try to build a solid local team who know the local business environment better.”
Haemmig concurred and said many startups would send their best salespeople to that region but it could only lead to failure. His suggestion, like Li’s, was to build a local team which could navigate freely in the ecosystem.
Tim Lafferty, chief operating officer of Global Corporate Venturing, interviewed Nicolas du Cray, China partner at Cathay Innovation on International investing: Asia to Europe and Europe to the US.
Cathay Innovation is a VC unit of Cathay Capital, which was itself founded 12 years ago as a crossover fund linking France and China by Ming-Po Cai who had lived in France for 25 years and wanted to build bridges between the two countries.
Before joining Cathay Capital, du Cray was a venture partner at Orange and Publicis-backed Iris Capital until 2015, and he was responsible for its investments in China.
Du Cray said: “Cathay Innovation is a global venture capital fund that invests in three countries – the US, China and France. We have a team in each country and the three work closely together. We learn from each other and we compare the activities and technologies from each other’s countries.
“Cathay Innovation has a multi-corporate model. Many corporates, such as Valeo, Michelin, Cardif, SEB Group and so on, invest in our fund to strengthen their own activities. Many of these corporates actually have their own corporate venturing arm but they invest in Cathay Innovation because that way they can scan technology coming from startups from all over the world, just by investing in our fund.”
Du Cray shared a story about Pinduoduo, a China-based company in which Cathay Innovation invested two years ago. At the time it was a fruit seller, and its founder Colin Huang explained to Cathay Innovation the way he sold fruit through messaging platform WeChat in a gamified fashion. “The company grew really quickly and, this year, it is valued at approximately $40bn.”
Lafferty added that Tencent, WeChat’s parent company, was one of the corporates that invested in Pinduoduo.
Du Cray said: “China is an interesting market. However, it is also challenging because it is very competitive, and we need to be able to make quick decisions. Therefore, it can be challenging for corporate investors. The speed at which investments are made can be overwhelming.”
Du Cray added that Cathay Innovation always sought to be local at every office. For instance, in China, the team should be more Chinese to adapt to the Chinese market.
Answering Lafferty’s question on how Cathay Innovation shared information with the corporate partners, du Cray said they, along with many portfolio companies, would meet regularly to share insights and new opportunities.
The view of CVCs held by portfolio companies came out in a panel – Unicorn insights on corporate venturers and how they can help – moderated by Yinglan Tan, founding managing partner at Insignia Venture Partners, and including Danny Yeung, CEO of Prenetics, a Hong Kong-based pharmacogenomics platform, and Bruno Maisonnier, CEO of Another Brain.
Yeung said it was a “love-and-hate relationship” because “you definitely want the corporates involved, but at the same time you do not want all the internal politics that goes on there”. With corporate funding from the likes of Ping An and Alibaba in its $50m fundraising, Yeung said “it would definitely help if someone at the top of the organisation, preferably a C-level executive, is driving their stakeholders”.
Maisonnier, a former chief executive at Aldebaran Robotics, where he led the creation of robots such as Nao and Pepper, and who worked with Intel Capital and SoftBank, a year and a half ago created artificial intelligence, deep learning and big data company Another Brain to improve the limited communication capabilities of Nao and Pepper. He said: “I have invested in 10 different companies with my own cash, so I have some personal experiences as an investor.”
He said many investors would spread their investments over many companies to be on the safe side, but, although difficult, he considered it better to choose fewer companies. “The disruptive innovation needs more cash and support from the beginning,” he added.
“Working with corporate partners can indeed be helpful, but often they see a product they like, and they want all of their team to get involved and it could actually do more harm than good to the product’s development.”
Tan raised another question: “What are some lessons you have learnt when dealing with corporates?”
Yeung said: “When you are dealing with so many different stakeholders from a corporate perspective, you really have to know what their key performance indicators (KPIs) are. Many times, things are looked at only from the entrepreneur’s perspective and there can be misunderstandings. Sometimes there are 15 to 20 stakeholders and each of these individuals has a different KPI which may not be tied into the C-level executives’ vision. You should tailor your presentation, navigating toward that specific individual’s KPI.”
Yeung added: “Corporate VCs have to understand startups are a different animal. Often, corporate VCs treat us like corporate companies. You must look at us as a startup growth company, look at our potential in the future. If you are a corporate VC, make sure you have a separate team or individuals that can manage us like a startup should be managed.”
Maisonnier agreed and added: “Some corporate venturers actually behave like financial venturers. If they hired the team from financial ventures to take care of the investments, and there are no more corporate ventures, they become merely financial investments. Corporate venturers need to understand that the world of startups, milestones and KPIs are not the same. You should have someone from the corporate who knows his or her own market and who is ready to trust with you what is important in this market, not try to manage you.”
In the following segment – Who controls the world: the future of technology, media and telecoms (TMT) – Pramila Mullan, senior principal at Accenture Ventures, interviewed Alvin Wang Graylin, China regional president at HTC, vice-chairman of the Industry of Virtual Reality Alliance and president of $18bn Virtual Reality Venture Capital Alliance.
The discussion centred on augmented reality and virtual reality (AR/VR). Graylin said: “HTC is right now the global leader based on investments. We are the most active AR/VR investor in the world, with over 90 deals in the past two years.”
Mullan first talked about the TMT transition in the US: She said: “In the US, we see companies like Amazon that enter through technology investment in IT, but then quickly migrated over to content. If you look at Apple, for example, it started with the Macintosh, then iTunes, iPod and iPhone.
“Telecoms companies climbed the value chain, so you have AT&T Horizon climbing the value chain into content and media. And then you have Disney and Netflix that have stayed in the media properties. It seems that the battleground is media. Are you seeing a similar pattern in Asia-Pacific?”
Graylin replied: “If you look at the global PC industry, that is definitely happening as the technology, the hardware and the platform mature. It is all going to be about content. What we are seeing in the emerging markets, emerging technology like AR/VR, is still more about the platform. That is where the money goes.
“Content is still a smaller part of the investments, but if you look at the hardware devices, the technologies and the platform, that is where the dollars are being put in.” However, like the other TMT realms’ transition, Graylin said in a few years this would change – as the hardware and platform matured, the applications and content would naturally emerge. In short, content was a key to sustain new technology.
Paul Morris ran the afternoon’s roundtable discussion session, which included various topics including setting up a CVC, developing an ecosystem in Asia, sovereign funds and corporations’ collaboration with VC.
Tom Whitehouse, chairman of Leif Capital and contributing editor at GCV, took up the sector challenges with a look at mobility and energy. His panellists were Jin Hu, China lead at BP Ventures, Simin Zhou, vice-president and managing director at UL Corporate Ventures, and Abhay Jain, chief executive at ActiveScaler. They took an in-depth look at mobility’s evolution over the years.
Jain said: “Asia is the key when it comes to transport and mobility. Too many people have the need to travel. The real issue is the sustainability of smart machines’ future, as well as the culture and politics of Asia, which is still a challenge to move forward.”
Zhou said: “At UL Corporate Ventures, we have done a few investments in mobility, one of them is Voltaiq, a startup with battery experts developing a platform for battery, data and analytics. A primary source of energy storage in the future will be batteries.”
Hu said: “Technology will advance, and we will have better technology when it comes to mobility, not limited to electric cars and low carbon.” She cited a Chinese saying – “right time, right place, right people” – to illustrate the different dimensions of the mobility sector. If travel was right, people met each other in the right time and place, then it was an appropriate description of the power of networks and meetings within the innovation capital ecosystem.
Paul Denning, CEO at Denning & Co, moderated the Driving next-generation corporate LP and GP relationships panel featuring Tyson Li, managing director of greater China region’s corporate development at Cisco Investments, Eric Benhamou, founder and CEO at Benhamou Global Ventures, and Chibo Tang, managing director at Gobi VC and manager of the Alibaba Hong Kong Entrepreneur Fund.
Preparing for this panel, Denning said he had read a dossier from 1997 on a three-day Harvard conference, Corporate venture capital learnings. “It is very interesting how little has changed,” he said. He also noted, however, that “the industry is much more efficient – there is a lot more dry powder, there is not a lot of liquidity”.
He added: “Now, the corporate players are much more sophisticated, so there has been this symbiotic relationship once again between the corporate GP, venture capitalists and other folks.” He invited panellists to elaborate on the differences they had noted in recent years.
Li said: “Ten to 15 years ago, we were focused very much on the core business of Cisco, but we now emphasise better insights for the market or technology disruptions coming down the pipeline.”
Benhamou said: “For me, the biggest change in the corporate venture landscape in the past few years is that it was expected that technology companies would give up their corporate venture arms as separate units. But it was unexpected that non-technology companies would develop corporate venture arms and today Silicon Valley’s finest companies come from completely different walks of life, the food and beverage industry for example.”
Tang said: “There are two observations I would like to make. The first would be from the perspective of a financial GP like ourselves. We have made a market effort to build relationships with more corporates as we evolve because being an investor in China for so many years, you quickly realise that there is so much money out there. As you are looking to invest in some of these deals, you think about what kind of strategic values that you bring to the table rather than just the money.
“The second thing would be from an entrepreneur’s perspective or from a venture portfolio company’s perspective. Corporates and corporate investors become more active through strategic funds. In China you see the big corporate gods like Baidu, Alibaba and Tencent. They have so much capital to deploy, so now it has become a question of not what or why, but when.”
Spotlight: Hong Kong and Macau
Edison Fu and Alice Tchernookova
The second annual GCV Asia Congress took its international delegation on an innovation tour of Macau – known for its casinos but increasingly as a smart city test site backed by Alibaba – while the GCV Academy was being held for corporate venturing leaders at KPMG’s Hong Kong office, including education sessions by Jeffrey Li, managing partner at Tencent Investment, before both parties met for a gala dinner and conference at the InterContinental Hong Kong.
After highlights from Bernard Chan’s keynote speech at the Asia Congress, two local industry experts gave a snapshot of venture activity in China’s special administrative regions of Macau and Hong Kong. Next month, GCV will look at mainland China as its innovative region.
The Greater Bay Area links Hong Kong, Macau – both special administrative regions of China – and nine cities in the Guangdong province.
Blair Zhang, executive chairman at Compass Innovation Alliance, organised the Macau delegation and in her panel at the GCV Asia Congress discussed the region’s prospects with Gordon Lam, managing director at Sinofuture Group, and Cindy Zu, senior business development executive at PitchBook Data.
Zhang asked Lam to describe the Greater Bay Area briefly as Compass Innovation Alliance helps VCs to enter China via this gateway. Each one of the 11 cities forming part of the area “has different characteristics in terms of the industry developments and, therefore, has a different focus when it comes to the industry it wants to place emphasis on”, Lam said.
He added: “Last year, the central government signed cooperation agreements with Hong Kong and Macau individually to push forward the Greater Bay Area plan. The plan itself has already been executed. The Greater Bay Area is trying to become one of the major bay areas of the world, comparable to Silicon Valley, New York and Tokyo.
“With a population of 66 million people, the Greater Bay Area boasts gross domestic product]per capita of $30,000, so it is a big market by itself. The area is still being developed under the slogan ‘one-two-three-four’ – one country, two special administrative regions, three currencies and legal jurisdictions, and four leading cities, Hong Kong, Macau, Shenzhen and Guangzhou. We hope that by 2020, the Greater Bay Area will at least be a match to the Tokyo Bay Area.”
He described the different strengths that formed a complete value chain. “Hong Kong and Macau have a service-oriented economy which would help foster more R&D and commercialise many of the innovations. Meanwhile, Guangzhou, Shenzhen and other cities in the Guangdong province focus more on manufacturing and logistics.”
Hong Kong: China’s gateway to the world
Bernard Chan, undersecretary for the Hong Kong government’s Department of Commerce and Economic Development, said: “Hong Kong boasts a number of top-notch universities with strong research capabilities, as well as world-class information and communication technology infrastructure and the largest data centre cluster in the Asia-Pacific region. Our internet connection speed is among the world’s fastest, and our global penetration rate is the highest anywhere.”
Chan said among continuing initiatives, Hong Kong would be establishing two research clusters. “One is focusing on healthcare technologies and the other on artificial intelligence and robotics. By developing these clusters, we aim to attract world-class scientific research institutions and technology enterprises to join forces with the local to develop more downstream and midstream R&D projects.”
Chan judged Hong Kong’s track record with its research clusters to be “pretty good” and gave an example from late 2016, when Sweden’s Karolinska Institute opened its first overseas research facility for reparative medicine and a science park. In September 2017, Massachusetts Institute of Technology (MIT) opened its first overseas “innovation node” providing entrepreneurial education and training for students and researchers from MIT and Hong Kong.
Chan said the Chinese government had been supportive of Hong Kong. “Researchers in Hong Kong can have access to research funding available on the mainland, and we can now have what mainland universities and research institutes have, and they will continue to set up laboratories in Hong Kong.
“Our strong financial market will certainly play a part in promoting innovation and technology. For example, we understand that biotech companies face financial challenges, and there is a long and costly journey in turning biotech research into effective products and applications.
“We are keenly aware that biotech companies with promising development require substantial cashflow to get through the arduous approval process demanded by relevant authorities.”
Chan gave insights on what had been done by the Hong Kong Stock Exchange. “With biotech and other sectors of the new economy in mind, the Hong Kong Stock Exchange introduced in April this year a new listing regime which allows prerevenue biotech companies and companies with weighted voting right structures to list. The new regime also provides a route for issuers seeking a secondary listing in Hong Kong.”
Chan stressed: “We are developing Hong Kong into the preferred listing platform for emerging and innovating enterprises. We are also working relentlessly with industry stakeholders to enhance our ecosystem for startups. Today, a new generation of disruptors is taking advantage of Hong Kong’s favourable economic and cultural development to create and innovate.”
Chan said he believed that, in recent years, Hong Kong’s startup scene had also taken off. He said: “With a growing number of private venture capital funds attracted by our startups, as well as incubators, accelerators and co-working spaces, we are confident that the startup scenes in Hong Kong will continue to flourish.”
Chan reaffirmed that Hong Kong embraced technology and welcomed talent. “The Hong Kong government is targeting a range of measures to promote innovation and technology. These include tax incentives to encourage R&D with a 300% tax deduction for the first HK$2m ($255,000) eligible R&D expenditure by operations and a 200% deduction for the expense. There is no limit on the expenditure eligible for this tax deduction.”
Making investments even more attractive, Chan announced: “We will make use of a HK$2bn scheme under the innovation and technology venture fund to invest together with the venture capital funds in Hong Kong technology startups.
“We have also introduced a HK$500m technology talent scheme to boost our technology talent. And we have recently announced a talent list which has been designed to attract quality professionals to Hong Kong to accelerate our development into a high value-added and diversified economy.”
Chan then added another example of how supportive the mainland government had been. “We are developing with the Shenzhen government the Hong Kong-Shenzhen Innovation and Technology Park between the two cities.
“Shenzhen is a fast-rising innovation hub. The technology would play a critical role in the emergence of the Guangdong-Hong Kong-Macau Greater Bay Area which links Hong Kong, Macau and nine prosperous cities in the Guangdong province. Together, the Greater Bay Area has a population of close to 70 million and a GDP of some $1.5 trillion. Such economic and consumer concentration can only bring a bigger market potential for Hong Kong companies and the global companies that partner Hong Kong.”
Charles Ng, associate director-general of investment promotion at Invest Hong Kong, who gave an update on Hong Kong’s venture capital ecosystem, added: “Hong Kong has grown exponentially in terms of the startup scene.
“Hong Kong has a diversified economy and is among the freest in the world. It also offers a simple tax system. Hong Kong also has a growing startup community and diverse incubators and accelerators.
“In fintech, we are seeing a lot of folks looking at cybersecurity, insuretech, payment systems, digital banking, smart city, e-commerce, retail tech, healthtech and the internet of things.” He said the Hong Kong government would act as a catalyst to complement, not to compete.
Jayne Chan, head of StartmeupHK at InvestHK, the Hong Kong government department responsible for attracting and retaining foreign investment, said StartmeupHK was InvestHK’s initiative aiming to help founders of innovative and scaleable startups from overseas set up or expand in the region. She told the congress: “For decades, Hong Kong has had a functional role for China, acting as a bridge linking it to the rest of the world. From a geographical point of view, it really is in the centre of Asia, attracting foreign and Chinese investors and entrepreneurs.
“The local government has always been proactive in promoting innovation as a strong pillar of the region’s economic development. In recent times especially, a range of policies, budget allocations and initiatives have been launched. A significant amount of funding has also gone towards building the infrastructure and spaces necessary for innovation to happen.
“Hong Kong is also a great in-between place for international candidates willing to get into China. Accessing the Chinese market straight away can indeed cause a huge cultural shock – everything there is done very differently, with a different composition and a different way of doing business, and an extremely competitive environment. In Hong Kong, people have knowledge of both sides of the equation – that is why it makes for a good buffer zone.
“The region is also home to a very international community. A survey that we conduct every year regularly shows us that half of Hong Kong’s startup founders are from overseas. This brings a lot of international expertise to the region and has given birth to a savvy local audience that is used to dealing with people from all around the world. The level of inward and outward foreign direct investment in Hong Kong is, incidentally, one of the highest worldwide [$104bn in 2017, according to the World Investment Report published by the United Nations Conference on Trade and Development].
“The bilateral exchanges with mainland China are still very much a cornerstone of the region’s economic development. Because of the business-friendly environment that Hong Kong offers, it makes sense for Chinese businesses to set up their offices here. For instance, we offer intellectual property protection, or free access to media that may not be available in China. Our corporate tax is fixed at 16.5% – one of the lowest rates in the developed world – and has recently been further reduced to 8.25% for the first $2m of profit.
“For foreign investors, the privileged relationship that Hong Kong enjoys not just with China, but with the Asian continent at large, offers a number of advantages, including preferential tax treatment or free trade.
“In spite of all this, the Hong Kong ecosystem can still be considered pretty nascent. Realistically, growth in the venture sector started three or four years ago here, when different clusters started coming together, progressively giving birth to an actual ecosystem. Because it so young, it is still lacking some of the essential components that would make it fully-fledged. One of these components is actually the corporate venturing side.
“Quite a few corporates have set up their headquarters here, but it seems that the focus, especially for local companies, is still very much on property and finance. And even though traditional conglomerates and family offices may have the kind of funds necessary to invest in early-stage technology, they tend to place their capital across a range of different sectors, as opposed to following a defined strategy.
“To an extent, investments on behalf of corporates, family offices and conglomerates are already happening in Hong Kong, but getting them to engage with the ecosystem properly will be a hard-fought process.”
Macau: En route to a venture gamble?
A recent report by Macau’s Gaming Inspection and Coordination Bureau showed that the region’s gross gambling revenue had climbed another 17% in August this year, hitting M$26.6bn ($3.3bn) after 25 consecutive months of growth.
Earlier this year, the International Monetary Fund ranked the region’s GDP per capita second worldwide at $122,489, just behind Qatar’s $128,702, adding that the city-state known as “the Las Vegas of the east” was likely to overtake Qatar by 2020.
In a place where, in the words of Blair Zhang, founder and executive chairwoman of the Hong Kong branch of the Compass Innovation Alliance entrepreneur platform, “nothing is related to innovation, because money comes too easy”, what kind of future can be envisaged for venture?
Aidan Chuang, chief operating officer at Macau-based Marlin Investment, said: “There are two key features to remember when one considers Macau as a potential venture market. One is that as a side-effect of the gambling industry, its small population of 630,000 enjoys one of the highest GDP per capita in the world. This means that in theory, there is enough capital to support a venture ecosystem here.
“Second is the fact that, similarly to Hong Kong, Macau benefits from a special political status, which gives it a certain amount of freedom and independence from mainland China and makes it a relatively international and open place. From these perspectives, I would say Macau has great potential for becoming a venture hotspot.
“But of course, there are some challenges too. First and foremost, the overwhelming weight of the casino industry in the local economy [$28bn or 70% of Macau’s GDP in 2017] leaves little space for other sectors to develop. There are, of course, other industries, such as tourism – which is often gambling-related anyway, but the rest of the activity remains derisory. This also means that a large part of the workforce [around a fifth, according to recent estimates] is involved in that industry. In addition, casino staff tend to enjoy higher pay and stronger job security than in other sectors, which gives youngsters little incentive to try to engage in other riskier types of activity.
“Finally, the small population size means human resources and access to talent are limited. This, coupled with a low level of knowledge-worker immigration, makes the creation of industry clusters very difficult. As a result, potential entrepreneurs are actually more likely to move to the nearby cities of Shenzhen or Hong Kong, where ecosystems already exist, than to stay here.
“The reality is that Macau is still in the very early stages of shaping a startup ecosystem. Especially when it comes to corporate venturing, I would say it is at toddler stage.
“However, things are slowly beginning to move. The government has started laying some foundations, having, for example, launched the local incubator Parafuturo de Macau Investment and Development, which recently received a M$12.6m investment from the state-owned Industrial Development and Marketing Fund. The local youth are starting to take an interest in entrepreneurship too, with initiatives such as the yearly Startup Weekend Macau [modelled on the Techstars startup weekends in the US] now shaping up.
“I believe the key to Macau’s success as a venture market will be to understand its strengths, and use them to its own advantage. For example, instead of the trending blockchain or artificial intelligence technologies, the focus should rather be on the strong sectors of tourism and gambling, trying for instance to introduce smart casino technology in the region. If Macau picks the right industries and the right direction for innovation, developing venture activity here could become worthwhile and profitable.
“Perhaps another thing that we are still missing here is the influence of some role models – some successful startup founders, or some Macau-born unicorns [companies worth at least $1bn] that could inspire young people and encourage them to go down the entrepreneurial path.”
Last year, Alibaba announced it had entered into a four-year strategic partnership with Macau’s government to support its transformation into a smart city, aiming to use cloud computing technologies to serve local residents and tourists. Six priority areas were fixed for the first phase of the partnership – cloud computing, smart transportation, smart tourism, smart healthcare, smart city governance, and talent development.
The agreement was Alibaba’s first smart city foray into a market outside mainland China, and was set to build on the success of similar past ventures such as the City Brain Artificial Intelligence project in the Chinese city of Hangzhou. The internet group said it could consider a future collaboration with Hong Kong, where the government has already been experimenting with the smart city concept over the past two years.
