Crowdfunding for startups in Hong Kong has received a boost with a $3 million Series A fundraise by the city’s first licensed crowdfunding business, AngelHub.
AngelHub and its sibling company, accelerator WHub, received the money from two strategic investors, TNG – itself a leading local fintech – and Kharis Capital, a local investment firm that makes direct deals on behalf of wealthy families.
The principals declined to state the company’s valuation post-fundraise.
Fintech startups in Hong Kong face funding challenges, made acute by the city’s high rents. Crowdfunding – allowing individuals to access eligible companies electronically, in lieu of investing in a venture capital fund – has been limited because the city’s securities law bans equity crowdfunding for retail investors. (Other forms of crowdfunding that don’t involve ownership or debt are allowed.)
The money was raised by K Hub Limited, a holding company that controls AngelHub, for crowdfunding, and WHub, for startup acceleration.
Churn ’em out
Karen Contet Farzam, one of the combined businesses’ co-founders, says the proceeds will be deployed across both AngelHub and WHub to expand geographically, upgrade the tech platform, and hire people. WHub has also unveiled a new co-working space facility.
Alex Ng, founder of TNG, says startups face many challenges in Hong Kong in addition to funding, such as struggles to get company registration services, open bank accounts, and affordable P.R. services. He’s backing WHub financially to help ease these burdens.
“They’re going to support fintech, wealthtech, insurtech,” he said, citing the rise of virtual banks and open banking rules. “They’re going to churn them out like a factory.”
Because of its legal framework, Hong Kong has been a laggard in crowdfunding. WeLab got its start in 2013 doing crowdfunding for institutional investors under its WeLend brand – and from there it quickly launched a bigger P2P business in mainland China (Wolaidai) and is today licensed to operate a Hong Kong virtual bank.
AngelHub was the first P2P to receive a license from the Securities and Futures Commission, but it too is restricted to accredited (wealthy) investors.
Crowdfunding goes global
China is the world’s largest market for P2P – but its industry is going through a massive consolidation driven by a regulatory crackdown. The US market got a big boost with the passage of the JOBS Act under the Obama administration, which opened crowdfunding to retail investors.
Companies such as AngelList, CircleUp and Wefunder have become important sources of capital for startups, and the market is big enough to support a variety of structures, including funds run by these services, convertible bonds, preferred shares and varying levels of quality startups. Some like EarlyShares are dedicated just to one asset class such as real estate.
In Singapore, the MAS has licensed several crowdfunding businesses that are also eligible to retail investors, such as Fundnel and FundedHere, while CoAssets (which is unregulated) also focuses on movies and real-estate deals.
VentureCrowd in Australia and Japan Cloud Capital are examples of equity crowdfunding platforms around the region. Meanwhile, in June, British P2P Funderbeam raised $4.5 million in a Series A round, with part of the proceeds meant to support its new office in Singapore.
Fundraising made easy?
Crowdfunding for equity is therefore becoming more popular, giving startups and small businesses access to capital without having to sacrifice freedom to a venture firm, while showing investors a broader range of investment stories beyond their personal networks, says Karena Belin, WHub’s co-founder.
AngelHub is meant to speed up the process of fundraising for those firms it allows onto the platform. Farzam says startups can raise money within three months. Investor ticket size is a minimum $10,000.
So far there are fewer than 10 companies on AngelHub’s platform, sourced from across Asia, out of about 300 companies that have applied. They are using the platform to raise $500,000 to $1 million. The startups are all tech companies but not necessarily fintechs.
Farzam says the platform now has “hundreds” of investors registered, including family offices, individuals, VC firms, and hedge funds, which have invested a combined $150,000 so far. “We aim to democratize startup investment,” she said, by transforming investing in small companies into an asset class.
But is it an asset class, which is a group of financial instruments that exhibit similar financial characteristics, and behave similarly in the marketplace? AngelHub’s investments are equity stakes in private companies, so that that extent they’re the same, but the underlying is very diverse. It’s very early days for the P2P, but so far there isn’t a quantifiable risk-return profile for these platforms. Perhaps with time and better liquidity, equity crowdfunding will develop some measurable qualities.