With a population of 7 million, Hong Kong offers many surprising benefits to entrepreneurs. The island city has a large market reach, a growing number of startup incubators, and proximity to manufacturing resources along the Pearl River Delta.
Elon Musk is bullish on the city as a marketplace for innovation. In a recent interview with CNN, the famed founder of Tesla and SpaceX noted that Hong Kong's roads currently have the most Teslas (per capita) compared to any other city in the world.
Hong Kong is home to nearly 2,000 active startups, and its growth matches that of the fifth fastest-growing startup ecosystem in the world (Amsterdam), according to a new report from research firm Compass.
Recognized as an international finance hub, the city has a GDP of $350 billion, and is home to the headquarters or representative offices of more than 70 of the world's 100 largest banks. The city also boasts relatively low corporate tax rates (16.5 percent), and has with few restrictions on international cash flow.
One successful Hong Kong-based startup to watch is HotelQuickly. The on-demand booking app that has raised a total of $5.63 million in VC funding. Headed up by co-founder and CEO Tomas Laboutka, the startup connects travelers to hotels at inexpensive prices. It also promises a 28 percent discount on the standard available rates.
Earlier this month, HotelQuickly inked a deal with DOKU, a payments processor based in Jakarta, to better expand across the Asia Pacific region (from South Korea to New Zealand).
"Indonesia is a strong market, where hotel occupancy is usually low, so the discounts from hotels are pretty big," Christian Mischler, HotelQuickly's COO, said in a recent interview with Bloomberg.
Here are three factors that characterize Hong Kong as a rising hot spot for startups:
1. A highly digital ecosystem.
Hong Kong is a hyper-connected city that has an exceptionally fast average Internet connection speed of 15.8 megabytes per second, which provides ample opportunity for entrepreneurs in the e-commerce and IoT sectors. Currently, some 90 IoT companies are working on technology projects in the Hong Kong Science & Technology Parks Corporation, a local co-working space for tech startups.
The city's government recently launched a $25.6 million fund to support tech startups. Today, there are 11 incubators on ground.
Still, despite Hong Kong's massive potential as a digital ecosystem, entrepreneurs worry that access to talent doesn't compare to other major startup hubs around the world (i.e., Silicon Valley, London or New York).
"There's been a great start, but we need more of everything: more founders, more value-added capital, and a more open immigration policy," says Tytus Michalski, managing director at Hong Kong-based Fresco Capital, in the Compass report.
2. An abundance of venture capitalists.
The VC scene is surprisingly strong. Unfortunately, investors typically look elsewhere. Local startups in the city are perceived to be weak, and have low exit valuations of just $1.4 to $1.7 billion.
It's not all bad news, though. In 2014, about $124 million was invested in Hong Kong startups, representing a 21 percent increase from the previous year. A recent report from Google and the Chinese University of Hong Kong (CUHK) valued the city's ecosystem at a number between $2.8 billion and $3.5 billion (based on both pre-exit and post-exit valuations of local private companies).
Although plenty of startups are raising capital in the Series A and B rounds, there still remains a seed funding gap, and very few Series C investments to note.
3. A strategic location for globally-minded startups.
Hong Kong is located along the Pearl River Delta (just below Mainland China), which is perceived to be an advantage to many business owners. The city's startups have a higher percentage of foreign customers than that of all the top 20 ecosystems apart from Tel Aviv, according to Compass.
The proximity to Shenzen, in particular, allows tech startups to create cutting-edge prototypes quickly and inexpensively.
Although Hong Kong trails behind other startup mega-centers in the region (namely, Singapore), it's primed to become a leading center, provided it can ramp up its VC investments, and churn out more highly-skilled computer programmers.