Hong Kong was the second largest IPO hub globally in 2020, beating Asian rivals Shanghai, Shenzhen and Singapore, with investment surging in tech, biotech and fintech.
In 2020, Hong Kong claimed the world’s number two spot for IPO proceeds after Nasdaq, and was ranked fourth in terms of the number of listings. Its total value of listings that year grew 26.5% to US$51.28 billion, according to bourse operator Hong Kong Exchanges and Clearing (HKEX).
This growth was on the back of megadeals such as the US$5.4 billion listing of Douyin competitor Kuaishou—the largest tech IPO in the world since Uber’s IPO in 2019—and other bumper listings such as JD.com and Netease.
China provided much of the continued growth, but a deeper look reveals other driving factors, specifically the surge in tech and bioscience IPOs, which has resulted in increased venture capital (VC) investments in Hong Kong.
Beating the odds
Continued confidence in Hong Kong’s financial markets has quashed the initial view that investors would flee the city. In fact, HKEX market volumes hit record highs at the start of 2021 to four times those of London Stock Exchange and 60% of NYSE.
Hong Kong’s strong performance in the face of COVID-19 headwinds and ongoing political developments is proof of the city’s undimmed status as one of the world’s leading financial hubs.
“Hong Kong has the ecosystem and excellent conditions to strive to raise a record amount of IPO funds in 2021,” according to Dick Kay, leader of the Deloitte China National Public Offering Group. “Its listing environment has become increasingly conducive to fundraising by new economy companies. More investment funds are setting up here due to the new limited partnership fund regime,” he says.
Since a change in listing requirements that permits pre-revenue biotech companies and dual-class structure IPO filings, over 40 new economy companies have listed in Hong Kong. Many of these are biotech or healthtech firms. According to Dealogic, Hong Kong is the second largest fundraising centre for biotech companies globally.
“In the past, most investments would be for Series A and B rounds, but now we are seeing good flow even at seed stage and clearly at later stage up to pre-IPOs too.”
The search for growth
Biopharmaceutical firm SinoMab Bioscience, which has its headquarters at Hong Kong Science and Technology Parks Corporation (HKSTP), is the first Hong Kong biotech start-up to successfully list under the new HKEX rule. The team is developing industry-first drugs for diseases such as rheumatoid arthritis.
Rising stars such as SinoMab are vying to join Hong Kong’s list of eight unicorns. “To feature so many unicorns is proof of the vibrancy, diversity and robustness of the investor and start-up ecosystem here in Hong Kong, which can match any in the world today,” says Albert Wong, CEO of HKSTP.
Wong believes Hong Kong’s investor scene will continue to flourish. “With the growing number of investor programmes and with the help of our partners, we are building a thriving investor base to connect with the world’s brightest scientists, academics and entrepreneurs right here in Hong Kong.”
For Nisa Leung, managing partner of Qiming Venture Partners—a venture capital firm with over US$5.9 billion in assets under management and investments in over 380 companies—a base in Hong Kong has allowed her firm to seed and fully explore the potential of today’s multibillion dollar healthtech market in China. “Hong Kong had minimal healthcare investment opportunities here three years ago, but now venture investments in this area have increased and we hope to see even more in the near future,” says Leung.
While the investor ecosystem in Hong Kong and much of Asia has, in the past, lagged behind places like Silicon Valley and China, the gap is narrowing, according to Carman Chan, founder and managing partner of Click Ventures. “The big difference now compared to say, the early internet days, is that everyone is participating. Family offices are learning how to invest in start-ups, private equity and hedge funds, and now corporations are setting up investment arms and learning how to do this.”
Samson Tam, former chairman of the Hong Kong Business Angel Network (HKBAN) and founder of information devices company Group Sense, says that in addition to family funds and institutional investors, there are large Chinese and global players entering Hong Kong and making the landscape richer.
“In the past, most investments would be for Series A and B rounds, but now we are seeing good flow even at seed stage and clearly at later stage up to pre-IPOs too”, he says.
This growth in early-stage pre-Series A funding is partially a result of ongoing co-investment schemes that seek to support Hong Kong’s start-up ecosystem. For example, the VC arm of HKSTP, HKSTP Ventures successfully attracts HK$13 (US$1.67) of co-investment from private investors for every HK$1 (US$0.13) it invests.
Recent investments also illustrate the diversity of the sector. Beyond the biotech and healthtech boom, fintech is another hit sector, with Tencent-backed payments provider Yeahka leading the way with its IPO in June 2020. The international tranche was 12 times oversubscribed in international markets. Another success story was of Hong Kong fintech start-up, 8 Securities, which was acquired in April 2020 by American consumer financial services platform, SoFi. Both examples prove the growing global opportunities that can be found in the region.
Innovation meets investment
Opportunities for investors and start-ups are growing, thanks to efforts made by the government and bodies like HKSTP, as well as prioritisation of funding and resources for fintech, artificial intelligence, robotics, healthtech, and smart city and Internet of Things (IoT) technology.
In Tam’s view, smart city and IoT technologies in particular will win big for Hong Kong start-ups. The combination of advanced infrastructure like the upcoming 5G rollout, combined with a dense urban environment and a large supply of possible smart city applications in Hong Kong, make it an ideal test and development location for smart city technologies.
While the investor base has become more diverse, start-ups still need to find the right channels to connect with them. The growing investor ecosystem has resulted in an explosion of networks, communities, focused fund pitch competitions, and programmes that connect promising start-ups with the most relevant investors.
“HKSTP has forged a network of 1,000-plus investors to create a variety of investment matching platforms and opportunities tailored for start-ups at all levels of growth and maturity,” says Raymond Wong, head of investment at HKSTP. Such initiatives helped raise record funding of HK$18.9 billion for the HKSTP community in 2018 to 2019.
An example of the growing wave of opportunities is the annual Elevator Pitch Competition (EPiC), organised by HKSTP. The competition provides start-ups with immediate exposure to leading investors from around the region. In 2019, it drew a record of over 650 applications from more than 40 countries. Despite the event going virtual in 2020 due to COVID-19 pandemic, it received over 470 applications from more than 37 economies.
“HKSTP has forged a network of 1,000-plus investors to create a variety of investment matching platforms and opportunities tailored for start-ups at all levels of growth and maturity.”
Raymond Wong, head of investment at HKSTP
HKSTP is also working with a number of companies to enhance the start-up-investor landscape. Collaboration programmes such as Tech Raiser with PwC and SPRINTER with HSBC and HKBAN, are providing start-ups different platforms to sharpen business acumen and strengthen investor connections; while allowing angel investors with domain expertise to evaluate quality deals.
A key observation that is consistent among investors is to not view Hong Kong in isolation but think beyond the confines of the local market and think of the Greater Bay Area (GBA), regionally and beyond.
Hong Kong is ideally-positioned to access and view opportunities across Asia, in particular in the GBA and China. With more IPOs and potential unicorns in the pipeline, and the slew of opportunities the GBA and region are bound to provide, both investors and start-ups in Hong Kong should be prepared to make the most of potential opportunities now and in the near future.
Start-up funding strength at all levels:
Unicorns getting bigger:
- On-demand logistics company Lalamove secured US$515 million to fuel China and US expansion
- Travel activities and services booking platform Klook raised US$200 million in a new funding round
Emerging start-ups also make their mark
- Knowledge-as-a-service player Lynk raised US$24 million to grow into South-east Asia and China
- Insurtech company Coherent secured US$14 million to open in US and across Asia
Hong Kong has the second largest private equity fund pool in Asia-Pacific