By John Lo, Partner, Corporate, King & Wood, Hong Kong
Editor's note – This series of articles explains the opportunities for business angel investment in Hong Kong. Part 1 Introduction – introduces angel investment in Hong Kong. Part 2 discusses the startup scene in Hong Kong, Part 3 outlines the profiles of business angels and networks, Part 4 describes financial infrastructure, Part 5 covers Government technology policies, Part 6 presents recent examples of success stories in the tech sector.
Hong Kong is blessed with many favorable elements for business growth. The most prominent factors often cited for Hong Kong's business success include its gateway role to China, the rule of law, and a location where goods, services and finance move freely. Such a positive environment has led to many success stories, particularly in the tech sector.
Recent Example
One recent success was Iatopia.com (ICL), a young Hong Kong company founded in May 2006 by Dr. Lee Shu Tak Raymond, formerly an associate professor at the Department of Computing of Hong Kong Polytechnic University. An inventor, scholar and systems consultant, Dr. Lee possesses more than 18 years of systems consulting and R&D experiences in Web 3.0 intelligent agent technology, artificial intelligence, internet and mobile technology and E-commerce.
ICL made an impressive head start in the e-publication business, servicing and partnering with more than 50 leading magazines, including Newsweek, MIT Technology Review, ESPN magazines and Ming Pao Weekly Magazine. The business model features: (1) delivery of interactive and multi-media based reading, searching and web-channel viewing experience to registered viewers, (2) service offerings to publishers ranging from simple e-content hosting, management of content, archive and registered viewers profile to maintenance of a full-fledged virtual communities and (3) generation of advertising and precision target marketing revenue from a host of branded advertisers.
As site traffic increased (with over 2.5M cpm recorded as of August 2008), ICL saw the apparent needs for extra server equipment and manpower and additional funding from sources other than the founders. From mid-2008 to early-2009, with help with two smart angels (who are professionals and seasoned investors), Dr. Lee managed to, although slightly slowed by the financial turmoil, raise two rounds of angel funding totaling HK$10,000,000 (around US$1.28million), based on a pre-money valuation of the Company at HK$25,000,000 (around US$3.2million).
In August 2009, Media Chinese International Limited, a strategic partner of ICL, entered into an agreement to subscribe for three convertible notes in ICL for a total amount of HK$4,500,000 (around US$577,000). Upon full conversion, Media Chinese will become the second largest shareholder of ICL. Media Chinese is dually listed in Hong Kong and Malaysia, and has a media products portfolio comprising 5 newspapers with total daily circulation of more than 1 million and more than 30 magazine titles around the world.
Conclusion
As seen above, this friendly environment, combined with its proximity to and close relationship with China, recent government policies favoring innovation and technology and the emergence of VC industry, have further made Hong Kong fertile soil to start and grow emerging businesses and by extension a rich venue for angel investment opportunities.
The practice and general awareness of angel investment, however, is still only limited to a relatively small portion of the business and investment communities. Angel financing has a long way to go before it can enjoy the type of popularity it has in California.
To improve on the current state of affairs and to elevate angel financing to the next level, much more work needs to be done. Seasoned angels need to make more effort to institute more organizational format and forums to angel activities in Hong Kong by establishing more angel networks, angel clubs and angel funds. The government, through the relevant quasi-government organizations, may want to consider making more missionary efforts to raise the awareness of angel investment among the business and investment communities.
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