Angel Investors or Venture Capitalists for your Hong Kong Business?
by Sarath
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Angel Investors
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Venture Capital Firms
Your startup needs some serious funding for entrepreneurial success. Angels and venture capitalists contribute to wealth, investment, and mentorship opportunities. Just ensure that you pitch your business idea with your utmost grit.
Needless to say, Hong Kong is the best when it comes to global investment. Not only in investment, but it is also best in quality of life, corporate taxation, and per capita income.
These metrics come together to create a haven for global entrepreneurs intending to get their big ideas off the ground in a big way. Current figures reveal that there are over3,000 startups in Hong Kong, up 42.8% from 2017.
These numbers and all the benefits are among the many things that attract startups and entrepreneurs to Hong Kong. That’s also one of the most prominent reasons why venture capital firms and angel investors are ready to invest their capital and wisdom into your business. If you want to know about angel investors and venture capitalists for Hong Kong businesses, keep reading this article.
Angel Investors or Venture Capitalist for Hong Kong Business
There are many top angel investors and venture capital firms in Hong Kong. But before you go to take any further action with any of the top firms, it is important that you know a few things about it. Know who is an angel investor or a venture capitalist in Hong Kong. Learn about the differences between angel funding and venture capital funding.
Who is an angel investor?
Angel investors are people or firms who invest their personal capital in early-stage startups or entrepreneurs. They generally provide a tiny one-time investment to help the business grow. Typically, they contribute to more favorable terms than other investors since they usually invest in the earliest stages of a company. They notably are more focused on helping startups build a product instead of generating a profit. Angel investors sometimes go by other names. They usually use names like informal investors, angel funders, private investors, and seed investors. A large number of angel investors are also professional investors and run more advanced venture funds.
Angel investor groups are the networks, or syndicates, of angel investors who pool their resources to invest more money than would typically be issued with private angel investment. A large number of angel networks focus on sectors in which members have experience or knowledge, although they are usually open to investments in other areas. Generally, investors in groups add funds to the group, and an expert syndicate management team chooses the investments.
Who is a venture capitalist?
Venture Capitalor VC firms offer growth equity capital and loan capital to assure ventures for returns that are higher than market interest rates and typically focus on later-stage companies. Venture capitalists invest in only companies with a long-term growth potential of at least 10X their investment, which already has considerable traction, high-speed revenue or user growth, a powerful team, and a viable product or service. Due to these high standards, less than .1% of businesses are funded by venture capital.
VC firms are of different types. The first one is the lowest funding level for VCs; it is typically called a “Seed Round”. This type of venture capitalist is appropriate for smaller companies that have just recently made traction and need capital to fuel growth. After that, rounds of consequent funding are described by letter, i.e. “Series-A”, “Series-B”, “Series-C”, and so on. With the investment amount and maturity of the business, acquiring funding gets more prominent and the letters progress down the alphabet. Many firms invest around these rounds but most specifically on one or two of these stages.
Pros and Cons of Angel Funding
All fundings come with risks and benefits. Let us take a look at what Angel-funding brings to us.
PROS:
Willing to take risks – Angel investors have often established business people who understand the degree of risk of setting up a small business. Angel investors are not scared like banks to throw investment capital at an idea that has potential. This is a result of amalgamating several things, which are:
Having an investor network that can get various people to invest.
They are well-versed in business development and have the foresight a bank lacks.
With their entrepreneurial background, they can easily sense a good investment opportunity.
The money isn’t a loan – The money that you get from an angel investor is not a loan. When you take a business loan, you have to return the money to the banks despite the success of your business. But this is not the case with angel investors. Angel investors function under a different set of rules. They give you the money you need to get going, and, in exchange, they get an ownership stake in the business. If your startup takes off, then both you and your investor reap the financial rewards. If the company fails, the angel investor doesn’t expect you to pay them back. Also, this means the angel investor might have an exit strategy if things aren’t looking good. The wrong decisions can spell doom for early-stage companies very early on. In which case, the remainder of the angel investment might be pulled.
Your odds of success increase – An angel investor will bring years of experience to the table. They already know the strings when it comes to starting a company. If you seek advice or guidance regarding the funding, an angel investor may offer a wealth of valuable knowledge. With the right angel investor and mentor, you could also become a part of the next generation of angel investors.
CONS:
Angel investors may set the bar higher – High-risk tolerance may come with the expectation of a high return. Angel investors are in business to make money, and when there’s a substantial amount of capital on the line, they will want to see a payoff. Angel investors expect a rate of return equaling ten times their initial investment within a few years. An unhappy angel investor could mean no more funding for the company in the future. In short, the pressure to deliver can be intense.
There are strings attached – Even though you’re not technically obligated to repay the investor the money they chip in, there’s a catch. The moment you hand over the equity in your company as part of the deal, you are giving away a part of your future net earnings. The amount depends on how much money the investor has invested. In case you expect your business to be wildly successful, it could also add up to a lot of money you won’t be able to claim. Ensure that you review the terms carefully in order to ensure that the amount of ownership the investor is requesting doesn’t infringe on your ability to make a profit.
You’re not in total control – Some angel investors may also want to control your company partially. Seasoned venture capitalists may see a great opportunity in your business but may also want more say in your operations.
Pros and Cons of Venture Funding
Consider the following pros and cons before seeking venture funding or angel investments:
PROS:
You can Keep the money – VC’s are gambling on your business. In case your business succeeds, they win big, and if it fails, they cut their losses. Similar to angel investors, you have no obligation to repay VC funds. If you go under, you won’t have investor debt hanging over your head.
Helps your company grow – Without VC funds, you may have to wait for a steady revenue stream before hiring additional staff or purchasing expensive equipment or technology. With an extra $500,000 or $1 million, you will be able to take your company to the next level immediately.
Connections with other business leaders – Venture capitalists are successful entrepreneurs in their rights, and they tend to have contacts that other business people would kill for. VC investors have a stake in your success, so it’s in their interest to help you network with anyone who might be able to help your business become more profitable.
CONS:
Your investors own a stake in your company – Even though you don’t need to repay VC funds, the money comes with strings attached. Investors give you money in exchange for an equity share in your company. This dilutes the number of shares you hold and can offer future shareholders. Depending on the number of shares granted, you may be giving investors the right to make controlling decisions about your company.
Your company may not be ready to grow – If you accept external funding before you figure out how to make your business profitable on its own, you could end up spending money on hires and expenses that won’t help your company in the long run. Scaling too early and investing too heavily in resources is the primary reason that startups fail.
Raising funds is a complex process – Company founders often spend a considerable amount of time perfecting their pitch, shopping it around, and dealing with multiple follow-up meetings. To see whether you have the stomach for fundraising, read SEOmoz CEO Rand Fishkin’s tale about his failed attempt to secure venture funding for the already profitable company.
Major differences Between Angel Funding and Venture Capital Funding
Both venture capitalists and angel investors invest money into businesses, so why do they have different names? Needless to say, both funding agents take calculated risks when investing in the hopes of earning a healthy return on investment (ROI). Let us study the difference between the two.
The difference between venture capitalists and angel investors is mainly defined by what money they use to invest. A venture capitalist is a person or a firm that invests in small companies, generally using money pooled from investment companies, large corporations, and pension funds. Usually, VCs do not invest their own money in the companies.
On the other hand, an angel investor is an authorized investor who invests their own money into small businesses. They must have a minimum net worth of $1 million and an annual income of at least $200,000 to be considered an accredited investor. Numerous angel investors are small business owners’ family and friends.
Small business angel investors concentrate more on helping build someone’s business than profiting right away. As a result, their terms might be more reasonable than a venture capitalist’s terms.
Top Venture Capital Firms and Angel Investors in Hong Kong
A large number of people might be searching for Venture Capital Firms and Angel Investors in Hong Kong.Below are a few of the top venture capitalists firms in Hong Kong and the angel investors. Here are the top angel investors in Hong Kong:
Hong Kong Venture Capital & Private Equity Association
Set up in 1987, the Hong Kong Venture Capital & Private Equity Association promotes economic development within Hong Kong by connecting innovators with its member companies. With US$2 trillion in assets, they offer networking opportunities for members to share ideas and put forward views to government departments. They fund in venture, growth, buyouts, pension funds, etc.
An entrepreneurial drive by the British Chamber of Commerce and the Business Angel Programme of Hong Kong was launched in 2007. It focuses on helping entrepreneurs become ready for investment and then connecting them with the right people to get their startup off the ground.
The Hong Kong Business Angel Network (HKBAN) was created in 2010 to connect interested Hong Kong educational institutes with angel investors. HKBAN presents a platform for angel investors to join Investment Matching Gatherings (IMGs), where student entrepreneurs can submit their startup business plans.
Here are the top venture capital firms in Hong Kong:
Nest
Although they are primarily based in Hong Kong, Nest seeks innovators worldwide to connect them with startup experts. They aim to “empower founders worldwide with their strengths in marketing, strategy, and access to global industry networks from their headquarters in the heart of Asia – Hong Kong”.
Email: contact@nest.vc
Alibaba Hong Kong Young Entrepreneurs Foundation
The Alibaba Hong Kong Young Entrepreneurs Foundation, as the name suggests, was created to help young Hong Kong entrepreneurs open and grow their startups within the huge Alibaba ecosystem. In total, they have a HK$1 billion fund to help support young Hong Kong entrepreneurs.
In case your startup is a technology industry disrupter, Click Ventures may well be the venture capital firm you are looking for. They focus on disruptive ideas in technology designed to change the way people live, work and interact with each other.
Also a sophisticated equity management software will help companies, investors, and company shareholders pursue, maintain, and make intelligent decisions. Companies like Eqvista can help you with this. Eqvista can help you in managing the company shares, cap table management and 409a valuations.
