Hong Kong may be one of the wealthiest cities in Asia, but angel investing is still at an early stage of development. However, if it is to encourage vibrant entrepreneurship, angel investment is a key part of the ecosystem.

Brigitte Baumann, who has been building angel investment communities in Europe for over a decade and is past president of the European Business Angel Network (EBAN), said that High Net Worth individuals in Hong Kong have many attractive options for investments, such as real estate and equity markets. But angel investment involves long time horizons, uncertain returns and a degree of personal involvement that may not appeal to the purely returns-driven investor.

“It is hard being an angel,” said Baumann, who visited Hong Kong last month for the Asian Business Angel Forum, held on May 20-22. “You have to know who you can trust, and you may have to find co-investors. I've seen family businesses in Asia that felt they had to invest in their cousins' business instead of someone outside the family. Part of it is an awareness issue [hindering angel investment]. It is also important to have a trusted, well developed ecosystem.”

Angel investors are wealthy individuals who invest in early stage start-ups, in exchange for equity or convertible debt, and help them grow to a point where the start-ups are ready to receive larger funding from venture capital. Angels are typically involved in mentoring the start-up founders or providing other practical support, such as recruitment or introductions to other potential investors. Angels may invest as individuals or in groups, where they pool their capital and share their expertise and due diligence.

Nelson Gray, an angel investor with over 30 years’ experience who is also an adviser to the World Bank and the European Commission on how to build co-investment funds, believes that Hong Kong's small local market forces start-ups to think about the global market, and its tightly connected business community is conducive to a strong entrepreneurial community.

Gray draws an unlikely analogy between Scotland and Hong Kong in their angel investor communities. Scotland has 8 per cent of the UK population, but 20 per cent of its business angel investment.

“[In Scotland] As a community we know each other well. We trust each other. We know where everybody lives,” he said, arguing that there is potential for a more robust angel investment community in Hong Kong. “This is quite different from a place like Moscow where no one trusts each other.”

There is a geographical limitation to angel investment, however. As angels are usually experienced entrepreneurs who dedicate many hours throughout several years in mentoring the start-up founders, most are in the same country as their invested start-ups.

In thinking about how to make investing in start-ups more appealing to Hong Kong, some observers have suggested using entertainment to promote entrepreneurship. Singapore has had some success on this front.

In Singapore, a reality television show called Angel's Gate, which features entrepreneurs and inventors pitching their business ideas to potential investors, has run for over a year and popularised the concept of start-ups, angels and venture funds. Recently, Hong Kong has started a similar television show, known as Iron Boss, on TVB.

Allen Yeung, chairman of the Hong Kong Business Angel Network (HKBAN) and vice-president of business development and technology support at the Hong Kong Science and Technology Parks Corporation, is one of the show's regular judges.

He said he had encountered many innovative ideas generated by Hong Kong's young people and it remains only a matter of time before the culture of founding start-ups takes root in Hong Kong's more riskaverse working culture.

“Historically, Hong Kong has a very big entrepreneurial culture to start with, so that is not a problem,” Yeung said. “The main task is for us to build a better ecosystem.”

Looking north from Hong Kong, there are even more wealthy people in mainland China, which has produced a number of legendary successes in technology start-ups in recent years. However, its angel investment community is also considered to be inadequately developed.

In 2013, Lei Jun, the founder of Chinese Smartphone manufacturer Xiaomi, famously remarked that the biggest difference between Silicon Valley and China in terms of entrepreneurship is that there are not enough angel investors in China.

Professor Mannie Liu Manhong (劉曼紅), director of venture capital research at the China Academy of Science, said she partially agrees.

“There are a lot of rich people in China, but very few of them are educated in angel investing,” she said.

However, Liu added that the first priority for China's entrepreneurship ecosystem is to encourage original innovation. When there are more entrepreneurs and more innovative start-ups, there will be more angel investment.

“Silicon Valley has more original innovation that is truly disruptive. Here in China, we need more originality,” she says.


Author: FREDA WAN Publisher: Education Post URL: http://www.educationpost.com.hk/zh-hk/node/28437