Though Hong Kong is one of the world’s leading financial hubs, its startup industry is still embryonic. Incubator NEST Investments hopes to change that by helping tech companies take advantage of the region’s wealth and resources as they work toward entering the mainland Chinese market.
Founded in 2011, NEST Investments offers initial seed capital of HKD$500,000 (about US$64,000), a follow-up round of up to US$1 million, access to strategic investors, office space, tech support, an in-house lawyer and a marketing and branding advice.
The incubator’s portfolio currently includes several consumer lifestyle startups, including restaurant review and recipe site Foodie, Red Packet, which sells gift packages of themed experiences, community guide I/Love and media and events company Info/Nation. Founder and CEO Simon Squibb says he is also interested in real estate and big data startups. NEST Investments plans to hold onto each investment for two to three years before exiting.
Though Hong Kong is a global financial center, Squibb, who has lived in the city for 15 years and is a naturalized citizen, says its startup ecosystem has only begun to take shape within the last 12 months, with an increase in angel investment and co-working spaces.
“It’s a victim of its own success in a way. People are making a lot of money here. There are incredible amounts of wealth here, but that wealth can be invested in property and the banking sector, where there are huge amounts of money that can be made,” he explains. “The startup world seems high risk and low return in comparison.”
Investors are increasingly excited, however, by the success of startups with billion-dollar-plus valuations, such as Tumblr and Pinterest. The global economic crisis also caused the banking sector to lose its luster for many recent graduates, making them more willing to launch their own business instead of following a traditional career path.
Hong Kong’s startup industry benefits from the region’s strong intellectual property protection laws, stable economy and infrastructure, proximity to Chinese manufacturers and a diverse, affluent population. Another test market founders have access to are the 34 million mainland Chinese who visit Hong Kong each year.
“You can test your business with lots of different pockets of people and see who it appeals to the most,” says Squibb. “The idea of Hong Kong as a test market is that if it works here, in the most competitive city in the world, then it can scale to the cities that our testing has proven to be the most popular.”
NEST receives about 100 applications a month, with half coming from Hong Kong locals, many of whom have returned to their home city after being educated in the U.S. Other applicants include expats living in Hong Kong, while about 20 percent come from other countries, including the U.S., Mexico and Israel. The incubator sees eight companies at its monthly pitch days, spending about an hour with each founding team.
“We look for people who have had experience, ideally someone who has failed once or twice before and who actually knows what building a startup is like,” says Squibb.
Some local entrepreneurs also have to overcome cultural hurdles.
“We meet fantastic entrepreneurs with brilliant ideas who were educated in the U.S. and then come back and have to convince their parents who have spent a lot of money on their education. I’ve gone with these founders to their parents with case studies showing them the potential upside,” says Squibb.
Squibb sometimes brings his personal portfolio of investments to convince family members that their offspring aren’t throwing their futures away by launching a startup instead of going into finance or law.
“Frankly, Asian families are very security oriented, so one edge that we do have at NEST is that we do give them money,” he says. “Their business will be worth something and we try to build a structure, so even if it fails it will still have some value, even if it’s an educational value.”