HK launches $256m fund, seeks partnerships from VC firms

In September, Hong Kong’s Innovation and Technology Commission (ITC) launched a HK$2 billion (US$256 million) fund inviting interest from venture capital firms to invest in local start-ups. The stated aim is to increase the added value, productivity and competitiveness of economic activities in Hong Kong.

The Innovation and Technology Venture Fund (ITVF) called for interest from Hong Kong or overseas-incorporated funds to be co-investment partners. It is open for applications until 15 January 2018.

The ITC said an independent advisory committee, which will be comprised of representatives from the business and investment sectors, professionals and academics, is to be established to select the VCs. Eligible investors are required to have a remaining fund life of at least five years, and a minimum remaining committed capital of HK$120 million as at the date of application.

Under the terms of the initiative, the government and each VC fund will invest in eligible start-ups concurrently at an overall ratio of approximately 1:2. The aggregate amount of ITVF co-investments with a co-investment partner will be capped at HK$400 million, while the capital limit in the same investee company will be HK$50 million. For each start-up, the ITVF investment amount must constitute no more than 40% of the original total target amount sought by the investee company, or HK$30 million, whichever is the lower.

“The ITVF will help fill the funding gap for local technology start-ups. We are confident that having this new fund will be conducive to developing a more vibrant Hong Kong innovation and technology ecosystem,” said Secretary for Innovation and Technology Nicholas Yang,

The initiative was approved in 2016 as a scheme to encourage more investment from VC firms into Hong Kong start-ups, especially at the series A and B stage. Whilst there is currently sufficient funding support for innovation and technology start-ups at the pre-seed to seed stages, most of these only provide seed to pre-Series A funding and many do not provide full-range support in terms of networking, business operation and marketing to the start-ups. Series B funding rounds in Hong Kong are typically in the range of HK$40 to 80 million.

A pipeline for exit has also been lined out. This will see the co-investment partner either locate third party buyers for both the ITVF and the VC partner stakes in the related investee companies, or it will acquire the ITVF’s holdings by the time their master agreement terminates. IPO will also be considered as an exit strategy.

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