Start-up in Hong Kong: Characteristics of Entrepreneurs and Enterprises

In recent years, Hong Kong has set off a wave of entrepreneurship. The number of start-ups has doubled in six years, from 1,558 in 2015 to 3,360 in 2020. The growth of the start-up ecosystem depends on the support and cooperation of many stakeholders, including the government, academia, incubators, investors, entrepreneurial communities, and other support organizations. Among them, entrepreneurs practice innovative ideas and bear entrepreneurial risks, which are the core of start-ups.

In mid-2020, the Hong Kong Trade Development Council Economic and Trade Research conducted questionnaire surveys and in-depth interviews with local start-ups on the development trend and performance of the local start-up ecosystem to explore the characteristics of local start-ups and entrepreneurs. The survey results show that local entrepreneurs are young and possess a high level of education, hoping to develop new products and new technologies through entrepreneurship. Venture capital ranges from hundreds of thousands to millions of Hong Kong dollars, mainly from personal savings, government subsidies and bank loans.

Many local entrepreneurs are young and highly educated

Most Hong Kong entrepreneurs are quite young and highly educated. Among the startups surveyed, most (43%) entrepreneurs are 30 to 39 years old, and some (17%) are only 20 to 29 years old. As for the education level, nine out of nine entrepreneurs have become university graduates, and 49% have obtained a master’s or doctorate degree. It can be seen from the survey results that there is no shortage of young and highly educated entrepreneurs in the Hong Kong start-up ecosystem. During the company interview, some interviewees stated that they had already started participating in different entrepreneurial competitions during their university studies, winning the competition and winning entrepreneurial funds, so they had already invested in entrepreneurship before graduating from university.

Of course, the resume and background of the entrepreneur is tied to the nature of the startup’s business. New retail entrepreneurs are relatively young, and 30% of the respondents are only 20 to 29 years old, with an average age of 33.5 years old. As for biotechnology and healthcare start-ups, due to the high knowledge and technology requirements and the need for certain work experience to meet business needs, half of the entrepreneurs are 40 years old or above, with an average age of 39.4 years. Among them, 52% have a doctoral degree, and another 51% have worked for more than 10 years before starting a business. The education level and work experience are the best in many industries.

However, entrepreneurs of different ages have different characteristics. Young people are full of enthusiasm, are relatively close to the trend, and have a keen sense of the market. However, young entrepreneurs have little work experience and are often prone to bumping into business ventures, and it is also harder to gain the trust of customers. Qiu Mingyao and Xu Weihao, co-founders of ReUbird, a local entertainment booking platform, mentioned that most of the customers who negotiate are older, and they need to be fully prepared at all times to deal with each other’s questions and queries. Older entrepreneurs are mature and possess soft skills such as negotiation skills and management capabilities. Coupled with years of work experience, they can accumulate contacts and funds for them, which indirectly improves the survival rate of start-ups. All in all, age does not seem to be an obstacle to local entrepreneurs. However, the society promotes the entrepreneurial spirit, and at the same time it should equip entrepreneurs with certain business skills and knowledge to ensure the sustainable development of the local start-up ecosystem.

Regarding the original motivation for starting a business, more than half (56%) of the interviewees revealed that they hope to develop new products and new technologies, and half of them said that this was the main reason for starting a business. For example, Tan Silai, the founder of Luzhiyuan (Farm66), developed indoor planting and established Hong Kong’s first indoor fish and vegetable symbiosis plantation, hoping to provide a healthy and safe vegetable supply to the local market. In addition, nearly half (48%) of the respondents believe that starting a business is one of the channels for making money, and 47% start a business because they want to develop their own business.

During the entrepreneurial journey, more than half (56%) of the respondents obtained business knowledge from friends. Other sources of entrepreneurial guidance include entrepreneurial communities, such as WHub, StartupsHK, etc., which allow entrepreneurs to get to know their peers through networking events they organize. In addition, since 90% of entrepreneurs are university graduates, and many local universities have entrepreneurial centers to provide entrepreneurial support to graduates, such as the Innovation and Entrepreneurship Center of the University of Hong Kong “iDendron”, the Entrepreneurship Research Center of the Chinese University of Hong Kong, and Hong Kong Science and Technology University Entrepreneurship Center, so the university network is also one of the main channels for local entrepreneurs to obtain guidance.

Venture capital ranges from hundreds of thousands to millions of Hong Kong dollars

In addition to the background of the entrepreneurs, the survey also hopes to further understand the characteristics of local start-ups. Adequate start-up capital is the first condition for the establishment of start-up companies. 43% of the companies surveyed have less than HK$300,000 in start-up capital, another 38% invested more than HK$1 million, and a few companies have invested as much as HK$50 million. The amount of venture capital depends on the nature of the business. Start-ups that have invested more than one million Hong Kong dollars are mainly information technology and hardware manufacturing, biotechnology and health care, and new economy industries. Most (62%) innovative service companies only need to invest less than 300,000 Hong Kong dollars.

In terms of funding sources, 85% of local start-ups use entrepreneurs’ personal savings as part of their venture capital. 30% of the surveyed companies received government funding, 22% applied for bank loans, and another 20% stated that some of their venture capital came from relatives and friends. In the entire local start-up circle, only a few start-ups can successfully raise funds from the private market in the early stage of their business, including incubators or accelerators (15%), reinvestment (10%), angel investment (7%), crowdfunding (4%) ) And venture capital (3%). On average, entrepreneurs’ personal savings account for nearly 60% (59%) of each startup’s venture capital.

In terms of expenditure, employee salaries are the largest operating expenditure of local start-ups. According to the survey results, start-up companies hire an average of 4.7 technical staff and 3.8 non-technical staff. In other words, each start-up company employs a total of 8 to 9 employees, and employee salaries account for about 40% of the company’s total expenditure. Although Hong Kong rents are high, most local entrepreneurship incubation programs provide rent subsidies, or even free workplaces. Office rent accounts for about one-fifth of the company’s total expenses, which is lower than employees’ salaries. Other major expenses include research and technology development (14%), software and hardware equipment (12%), and marketing (10%).

As for the scope of market coverage, due to the relatively small scale of start-ups at the beginning of their establishment, most of the interviewed companies are now focusing on the Hong Kong market. On average, over 80% (83%) of their business comes from local, 9% from mainland China, and the remaining 8% from overseas markets. Start-ups generally expect to gain a foothold in the local market first and then develop overseas markets. Respondents expect that the Hong Kong market (76%) will still be the mainstay after three years, but the shares from the Chinese mainland (12%) and overseas markets (12%) will increase.

Among overseas markets, the Southeast Asian market is most popular with local start-ups. 14% of respondents indicated that Southeast Asia is one of their current major markets, and another 19% indicated that they will expand into the Southeast Asian market in the next three years. During company visits, many start-ups interested in entering Southeast Asia mentioned that compared with other parts of Asia, there is less competition in the Southeast Asian market and there are fewer barriers to language communication.

However, the survey results show that start-ups are not expected to see a rapid increase in business share from non-local markets, which is believed to be related to the development of the new crown pneumonia epidemic and weak global demand. Asked about the impact of the new crown pneumonia epidemic, two-thirds (66%) of the companies believed that the epidemic had a negative impact on their business, including cuts in customer spending and decreased consumer desire, and 16% more clearly stated that the epidemic had affected their business expansion plan. Some interviewees encountered difficulties in finding overseas customers and even needed to delay their development in the Greater Bay Area or even other markets. However, in the face of the impact of the epidemic on the local economy, local start-ups have actively responded to market changes, such as developing new products and services, adjusting product schedules, etc., to give full play to their entrepreneurial spirit.

The HKTDC Economic and Trade Research conducted an online questionnaire from June to July 2020 and successfully interviewed 259 start-ups established in Hong Kong for less than 8 years with Hong Kong as their corporate headquarters to understand the development trend and performance of the local start-up ecosystem. As well as the industry’s views on the opportunities in the Guangdong-Hong Kong-Macao Greater Bay Area, in-depth interviews were conducted with 25 different stakeholders for key case analysis. This study covers the main industries of the local start-up circle, including biotechnology and healthcare, information technology and hardware manufacturing, innovative services, new economy and new retail.

Industry%
Biotechnology and healthcare (including biotechnology, food technology, health and medical, sustainable technology/green technology)19%
Information technology and hardware manufacturing (including information, computer and technology and related hardware manufacturing, such as the Internet of Things, 3D printing, wearable devices)24%
Innovation services (including design, professional or consulting services, data analysis)27%
New economy (including financial technology, robotics/smart manufacturing, smart city)18%
New retail (including e-commerce, logistics technology, supply chain management, retail technology)13%
Current business stage%
Seed stage-the company starts to promote and sell products55%
Growth period-the company begins to have influence in the market, improves business processes and increases recruitment41%
Maturity period-the company develops rapidly, has stable liquidity and profitability4%
The company is planning a listing/acquisition0%
Years from establishment%
5 – 8 years20%
3 – 4 years43%
less than 2 years37%

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