Financing technological innovation and startups have proven to be one of Hong Kong’s key obstacles to advancing its financial market and global role in technology.
Governments around the world desire to create a homegrown tech industry, however, few can create and sustain all the tangible and intangible elements required to cultivate entrepreneurs and fund technology concepts into enterprises. As the artificial intelligence (AI) revolution continues apace, the need for homegrown tech is becoming more important.
The University of Hong Kong (HKU) and Gobi Partners, a pan-Asian venture capital manager, is looking to address that problem in a joint fund called the ‘HKU Entrepreneurship Engine Fund X Gobi Partners’ (Gobi-HKU Fund); it is supported by the Hong Kong Investment Corporation.
Thomas Tsao, founding partner of Gobi, is focusing on the early-stage funding gap in Hong Kong’s capital markets to create a new, institutional financial asset class, as Gobi-HKU seeks to cultivate a technology ecosystem and hub based in Hong Kong. “Even 10 years ago Hong Kong had no tech funding ecosystem. Gobi has been trying to build it out for years. This fund represents the realisation of that goal,” Tsao told FinanceAsia.
“It’s not because Hong Kong doesn’t lack investment capital,” said Tsao, “You can walk down Central and run into numerous billionaires. Hong Kong’s problem is that most of its local capital is tied up in property or sourced from property and primarily interested in property investment.”
Filling the early-stage funding gap with institutional venture capital and business support alongside research and development from HKU will bring about major changes in Hong Kong’s economy.
Tsao added that, “Hong Kong investors focus too much on initial public offerings (IPOs) and financially engineered vehicles making short term profits in asset trading instead of creating useful, world changing solutions. For a long time, an ecosystem has been needed to develop, and realise ideas into working prototypes and ultimately into profitable businesses.”
Changing Hong Kong’s investment culture
Hong Kong investors have consistently declined to fund some of China’s most important technology companies at their early stage such as Alibaba, the ecommerce and AI giant and DJI Technology, the global leader in commercial drones.
Tsao explained, “There is plenty of money in Hong Kong. Unfortunately, Hong Kong investors lack risk tolerance. An entire investment culture has been spoiled by the real estate mindset because values never came down. In the past, Hong Kong was always about generating fast returns. Our fund is an antidote, an Asian level platform of slow, patient capital that scales startup growth.”
Tsao describes the kind of investment strategy and funding capability he wants to bring to Hong Kong. In a recent New York Times interview Jeff Bezos stated: “The key reason why the US has so much entrepreneurial success is that the country has the best risk capital, allowing founders to raise $50 million even with just a 10% chance of succeeding.”
Bezos added, “Given a 10% chance of a 100 times payoff, you should take that bet every time. But you’re still going to be wrong nine times out of 10.”
Tsao points out, “Hong Kong desperately needs this kind of investment principle to ignite entrepreneurship and fulfill its complete financial and economic development role to China.”
Professor Stephanie Ma, vice-president and pro-vice-chancellor (Research) (Interim) of HKU, describes how HKU will contribute to this new capital class.
“The Gobi–HKU Fund I reflects HKU’s strong commitment to translating world-class research into innovations. Our collaboration with Gobi Partners will strengthen our mission to turn breakthrough research into real-world solutions. With new investments underway and more support on the horizon, we are accelerating the growth of high potential HKU spin-off startups. This marks a new milestone in HKU’s journey of innovation,” Ma told FinanceAsia.
The Gobi-HKU Fund plans to introduce patient, long-term venture capital investment practice to Hong Kong. Early-stage companies looking for $1 million to $5 million are ideal candidates.
In the March launch, it announced investments in Manifold Tech – which develops spatial intelligence for robotics, and AilsynBio – an AI drug design and recovery.
Investing in growth from conceptualisation to engineering and marketing milestones rather than financial liquidity is not only crucial to developing technology, but Hong Kong’s economy.
Tsao emphasised: “China’s Central government wants Hong Kong to fund and support technology growth for China and not be too concentrated on property development.” The Gobi-HKU Fund is trying to shift that trend.
Turning concepts into businesses
For 24 years, Tsao and Gobi have exclusively focused on investing in semiconductor development.
“We understand evolution and patience needed in early-stage technology and business development; we invested in Bright Semiconductors of Shanghai in 2008. This requires patience for building technology and business. Many Chinese VCs and investors shy away from semiconductors because the development cycles are so long. E-commerce was more attractive for a while,” Tsao said.
He added, “Although past payoffs in semiconductor development required long gestation periods; the recent trade war has benefited China’s semiconductor makers by compelling domestic development.”
Tsao hopes to cultivate change in Hong Kong’s academics and startup founders – not just in venture capital. “Many professors are too research oriented and are inexperienced in starting and running an enterprise in a fast-changing environment. Gobi’s value added is business and technology development- determining which person is suited to lead a startup at every stage,” he said.
His advice to candidates is: “Gobi is not running a research and development fund; rather, it seeks to commercialise intellectual property and research by adding value to leadership.”
One of the biggest trends benefitting Hong Kong is the return of Chinese scientists.Tsao observed, “We are seeing a reverse brain drain where Chinese scientists are returning to Hong Kong.” He added, “I’m seeing many of them returning to Asia, starting with Hong Kong as a base after living in the US for 20 years. Hong Kong’s world-class universities are well positioned to support their fields.”
Tsao added, “The current geopolitical environment has made sovereign wealth funds and large family offices realise they need to diversify their technology risk and origination outside of Silicon Valley. That means you can’t just depend on Silicon Valley for your tech origination. Government demands for supply chain resiliency and diversification are also forcing relocation. Traditionally, the best minds in Hong Kong and [mainland] China would emigrate to the US. Now they are returning to Asia.”
A seed and venture fund dedicated to Hong Kong startups will enable multiple rounds of follow up funding to reach milestones and sharpen commercial skills without the need to achieve near term profits.
According to Tsao, “One of the most important characteristics of entrepreneurs is the ability to experiment and quickly pivot away from a failure or ‘decide to go all in’ with a discovery.”
Kazakhstan, Uzbekistan
The delegation aimed to bring together technology companies from Hong Kong, mainland China, Macau and Singapore to explore investment, innovation and market-entry opportunities in Central Asia.
The delegation visited Astana and Tashkent, engaged with venture capital funds, financial institutions, technology companies and government-backed innovation platforms.
