These VCs say Hong Kong is still the best place to build your company

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There is no doubt that Hong Kong is one of the best cities in Asia to start a business. With its close proximity to manufacturing hub Shenzhen, Hong Kong sits within a 4-hour flight to nearly every destination in the region. The city’s large English-speaking population also makes it an attractive place to settle and, to top it off, Hong Kong has no capital gains tax and one of the lowest corporate tax rates in the world at just 16.5 percent.  

However, there are a number of challenges Hong Kong faces particularly with the rapid emergence of competing ecosystems around the region. One of the largest complaints regarding the city is the ridiculously high cost of living which makes it nearly impossible for a startup company to bootstrap, let alone thrive. And while the ecosystem has grown by leaps and bounds over the last 5 years, challenges still arise due to a lack of early-stage investor education and talent retention. (Every good startup essentially leaves once they get traction).

I asked some of Hong Kong’s most prominent venture capitalists what they thought of the city’s future. Here are three reasons why you shouldn’t give up on Hong Kong just yet.

Survival of the fittest

Two of the largest gripes that startup founders have about doing business in Hong Kong is the lack of government support and the high cost of living, namely rent.

When compared with Singapore, the city provides virtually no financial support for startups other than the Innovation and Technology Venture Fund worth US$257 million (or HK$2 billion), which is still far less than the Singapore government’s investments in total. The details of how this money will be deployed by the government are also vague at best.

David Chang, founder and managing partner of MindWorks Ventures, is one of the stars in the Hong Kong venture capital scene. The way David sees it, these two deterrents are actually strengths of the overall ecosystem when viewed from the right perspective.

“Hong Kong’s ecosystem is less crowded than Singapore. Getting too much support from the government is not a good thing […] [because] bad founders and bad business models are getting funded left and right. A lot of early-stage companies get stuck in a limbo stage where they are unable to raise a big round because their business model just doesn’t work. And VC’s get overcrowded with proposals.”

Because there is little to no government support in the city, a company must figure out how to aggressively grow their numbers and their top line from day one. This provides a natural filter allowing only the strongest companies to survive.

The same principle applies to the rising cost of living. High rent in Hong Kong forces a process of natural selection for startup companies. The last thing startup investors want to see is their money squandered on rent.

A steady inflow of talent

Hong Kong has always been a transient city due to its proximity to China and status as a financial hub. Expatriates come and go often which provides a constant pipeline of industry talent.

Tytus Michalski is a managing partner of Fresco Capital, a venture capital firm that invests in early-stage startups around the world. He is an active supporter of the startup ecosystem in Hong Kong and serves the community through mentorship and education.

The private sector paves the way