Funding startups — it's all about solving problems

In the buzzing world of startups, only focused and down-to-earth problem solvers could survive the stiff competition and attract venture capital to help them get off the ground, a China Daily Asia Leadership Roundtable forum heard on Tuesday.

Getting money for startups could be a daunting task years ago, especially in Hong Kong, because traditional VC firms were more interested in putting money into startups in the relatively late stages of their lifecycle in exchange for more secure returns, said Vincent Law, founder and managing director of Spark Ventures.

“In the past few years, however, the local startup scene has changed a lot as more and more new investors are joining the game, be it local VCs, corporate VCs, venture funds set up by family offices or funding schemes launched by the Hong Kong government and world-class incubators like Cyberport,” Law told the a panel discussion themed “Then and Now: The New Formula for Early Stage & Angel Investment”, held as part of the two-day Cyberport Venture Capital Forum in Hong Kong.

Billed as Cyberport’s annual premier venture forum and the region’s signature venture conference, the forum kicked off, shedding light on the game-changing world of tech venturing.

More importantly, the Guangdong-Hong Kong-Macao Greater Bay Area, a national policy to replicate the success of other city clusters to promote the emergence of a regional powerhouse, spells potentially huge opportunities for Hong Kong startups with the foresight to jump on the bandwagon, Law said.

The grand plan, which reinforces the theme of regional cooperation and integration, highlights a broader market to bolster the broader vision of startups in Hong Kong, he said.

“If local startups heading north for greener pastures could expand their businesses across the region, it’s a perfect stepping stone for them to go global and get more funds.”

In the second quarter of 2019, VC-backed companies raised $52.7 billion with 3,855 deals, according to data from KPMG. The role that venture capital has played in the startup scene can never be underestimated.

“Startup is really about solving problems,” said Theodore Ma, managing partner at CoCoon Ignite Ventures. “From a VC’s point of view, we’re investing companies to essentially give them more runway. Investment money isn’t the money that you make. Instead, you should get money from customers and customers are only willing to pay if they understand you are actually solving the problems.”

Ma said this points to a shift of focus among the investment community. Previously, VCs just looked at hundreds of companies and picked one with the most impressive statistics.

“Today, we’re actively going out there to find those companies that know exactly what they are trying to solve,” Ma noted. “Those companies are not just out there raising money like anyone else, because they’ve got valuation. They are raising money because they truly understand specific industry-related problems and know how much one may need to become profitable.”

Anthony Woo, vice-president of product strategy of Digital Transaction Ltd, agreed. He believed the overall investment community is shifting from an overly excessive focus on matrix and statistics.

“The general overall mentality is changing today in the sense that plenty of investors are doing soul searching and reflection to deeply understand what they’re investing in,” he said.

As the next big things like big data, artificial intelligence and 5G stand as the highly sought-after investment themes on everyone’s lip, investors nowadays have a lot of homework to do to deeply understand what they are investing in, he said.

“Looking for the network, showing your ideas and working with other people — this is the winning formula I can offer for entrepreneurs,” said John Ason, professional angel investor of Kewpie Associates.

“We’re obsessed with failure and we’re obsessed with success. But both of them are just a snapshot in journey. There are companies out there that have failed multiple times. There’re also companies that were runaway successes but have disappeared nowadays,” said Ma.

“More focus should be put on the journey, rather than the snapshots,” he stressed.