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Notes on Hong Kong government policy on startups

March 29, 2015

Some observations

1) One really important fact that is often misses is that SME means something totally different in HK than in the US or Mainland China.  The HK government defines a small business as something with less than 50 employees.  The US definition is 200 employees, and Mainland China talks about 2000 employees for a small business.  This became amusingly obvious when IBM did a presentation for small businesses cloud computing in Hong Kong.  The presentation was aimmed at businesses with 200-300 employees.  In the US, this would be considered an SME, but in Hong Kong, a 200-300 tech company is *HUGE*.

2) First of all, I do not think that it is the primary responsibility of the HK government to fund startups.  Government money can be useful for some basic research and development, but outside of that, there is more than enough private money in Hong Kong that there is absolutely no need for the government to put in more money.  What the government can and should do is to encourage private investors to invest in Hong Kong companies, and then remove whatever regulatory road blocks there exist.  If private investors are not investing, the government should ask why.  For example, Li Ka-Shing has made no high profile investments in Hong Kong startups, and the HK government should ask him why.  Fortunately, looking at all of the activity that is going on, I think at some point someone had that conversation with him which is why things seem to be changing.  I very strongly suspect that the things that are annoying him are the things that are annoying me.

Before the HK government pulls out its checkbook, it needs to call in the heads of the big banks in Hong Kong to ask why they aren’t pulling out their checkbook.  By refusing to even open bank accounts for bitcoin businesses, HSBC is making it extremely painful to do fintech in Hong Kong.  Yes, I know they are terrified of the US government, but it would be nice if they were even more scared of the HK government and Li Ka-Shing.  If HSBC doesn’t want to get into that business, the the HK government should encourage some other local bank to take this business away from HSBC.

3) Second the whole approach that the government has for applying for grants and funding is broken.  The government has this lengthy application process, and then you might or might not get your money.  There seems to be a bias toward high-risk and high-reward businesses that result in great photo-ops and great metrics, and a bias against ordinary boring businesses that just make money.   In addition, there is usually a strong bias toward being selective.  It looks bad if they rubber stamp everyone so they have to find people to reject.

The trouble with this approach is that businesses are time limited.  No small business is going to spend several weeks trying to get together documents and filling out forms just to be rejected.  The other thing is that a lot of businesses just don’t have experience filling out government forms, and you don’t want a situation in which the success of a business depends on whether or not it is good at playing bureaucratic games.  You can create a system in which businesses are able to access the system by having some sort of advocate or intermediary.  This can work, but this also adds inefficiencies into the system, and if you aren’t careful, you can have the tail wagging the dog.

There’s also a cash flow issue.  You can get government funding for a patent lawyer, but you need to pay the patent lawyer cash first, and show the receipt to the government.  For a small business this can impact cash flow badly.  The easy solution is to have someone loan the company the money, they pay the lawyer, give the government the receipt, they give you the grant, and you repay the loan.  This seems to be an obvious solution, but it appears that I’m the only person in Hong Kong that offers loans like this.

There are ways of working around these problems, but this gets you to the really big problem which is lack of communications.  The government doesn’t have a good communications channel to provide information (i.e. what are they looking for), and they don’t have a good channel to relay information back to the decision makers.

4) People have been talking about emphasizing superstars in Hong Kong.  There are a few problems with that.  The biggest is that Hong Kong has a hypermedia environment in which people like to pull down superstars.  The reason that the tycoons are quiet is that no one wants to have Apple Daily target them, and I suspect that if you have a superstar tech entrepreneur in Hong Kong, within two months, the HK press will make their life hell.  I think that the media portrayals of tech entrepreneurs in Hong Kong should be less the “heroic entrepreneur” but rather just ordinary people making a living.  You just can’t have a thousand Jack Ma’s in Hong Kong.  You can have thousands of clothing stores, small law firms, restaurants, and web design firms.

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