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Science Park’s Wong: HKEx private market can help startups

Hong Kong tech companies struggle to attract Series A or Series B capital, in part because many cannot scale beyond the territory.

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Albert Wong Hak-keung, CEO of Hong Kong Science and Technology Parks Corporation (HKSTP), says the idea of a private market run by Hong Kong’s stock exchange could be a boon for tech startups seeking capital.

Helping the hundreds of startups working at the park get financing has been a priority of Wong’s since he assumed the CEO role in August, 2016.

He now has a six-person team tasked with networking with investment bankers, private families and angel investors, to help draw attention to tech startups.

Last year the government announced the setup of a HK$2 billion fund to match private investment in Series A and Series B rounds for local tech companies, while HKSTP has a HK$50 million fund for pre-Series A funding.

But these measures don’t address the broader lack of funding for most startups, including fintech companies at HKSTP working on blockchain solutions, RegTech, and cyber security, Wong says. The proposal by Hong Kong Exchanges to establish new boards aimed at attracting tech listings could help fill the gap.

“Investment is a big part of what we need” for the 267 companies in HKSTP’s incubation program, Wong said; the same holds true for companies at Cyberport, another government-backed site for fintechs. “There’s no lack of money in Hong Kong but few investors channel it to startups.”

As part of HKEx’s plan for two new boards – a ‘premium’ board for dual-class shares, and a ‘pro’ board for pre-revenue companies – it is also proposing the establishment of a private market that would rely on blockchain technology, rather than on traditional regulation, to register, certify and trade shares of startups.

“These new boards give investors in startups a new exit. For angel and Series A investors, they’ll be more likely to invest if they see how to exit a deal,” Wong said.

While he did not endorse a particular aspect of the HKEx’s proposals, he speaks enthusiastically about using HKSTP as a forum to discuss them with investors, companies and exchange officials.

HKEx’s proposed ‘premium’ board is for large-cap companies, and the ‘pro’ version is similar to the existing second board, GEM. So these are unlikely to help startups. “The private market is better,” Wong said. “We need a place for helping small cap, pre-revenue companies.”

Without more reliable funding, the companies at HKSTP and Cyberport engaged in research and development will struggle. “I want to see deal flow,” Wong said. “My job is to help these companies commercialize.” That’s necessary to HKSTP’s core mission, which is to support the reindustrialization of Hong Kong’s economy by developing advanced manufacturing; the park was established 15 years ago by Hong Kong’s first chief executive, Tung Chee-hwa.

There are plenty of government-backed vehicles for pre-seed, seed, pre-Series A investment, but not for Series A or Series B rounds. Wong notes the private sector is also weak in this regard. Angel investors, many of them from family offices, don’t participate in later-stage rounds; they also bring little to the table other than capital.

Professional VC can bring networking, operational skills and marketing knowledge to startups, but most of them are looking for tech companies that can scale – and so they tend to ignore Hong Kong startups that may have a more local focus.

A private market run by HKEx isn’t the first time a platform was established to help attract capital at this stage: since 2010, HKSTP has run an ‘angel network’ in conjunction with local universities and the Hong Kong Venture Capital and Private Equity Association (HKVCA). The idea was to get companies pitching to investors. Now HKSTP is trying a similar thing with HKEx, specifically to encourage high-growth, pre-revenue companies to seek a listing.

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Science Park’s Wong: HKEx private market can help startups