Initial coin offerings (ICO), a new way of raising capital by selling virtual tokens to investors in a new company, raised US$11.8 billion this year through May, more than double the US$5.5 billion raised in the whole of 2017, according to the Wall Street Journal.
However, the popular yet controversial fundraising activity was banned by Chinese authorities in September last year, sparking an exodus of startups to other countries where ICOs and token listings are legal but regulated.
Edith Yeung, partner and head of China at 500 Startups, recently sat down with the Hong Kong Economic Journal to discuss the trend of blockchain applications, and how Hong Kong can profit from blockchain opportunities.
HKEJ: You have been focusing on investing in Chinese startups, and you are also involved in projects on cryptocurrencies and blockchain technology. With ICO currently being blocked in the mainland by the government, how do you explore the investment opportunity of ICO projects in the mainland?
Yeung: Since September last year, the Chinese government has banned all ICO activities and shut down all cryptocurrency exchanges in the country. Chinese startups which have ICO plans have no choice but to turn to markets overseas. Among those leaving the country, there are excellent and promising startups, and they would set up their new bases in San Francisco, the US, Hong Kong, Singapore, Switzerland and other regions. Nevertheless, this move, in fact, suits our investment plan of a globally diversified portfolio.
Q: As a professional investor, how do you distinguish between blockchain technology and cryptocurrency?
A: There are various applications for blockchain technology, which is not necessarily equivalent to cryptocurrency. The blockchain technology has been adopted in logistics, supply chain, fintech and many more sectors.
As an investor, we recently started paying close attention to blockchain software startups and projects, particularly those related to the development of the underlying software technology. On the other hand, data centers, which are needed support bitcoin mining and applications, are regarded as one of the hardwares related to blockchain technology.
Q: In the development of blockchain technology, what role do you think Hong Kong can play?
A: If we are talking about artificial intelligence (AI), the Hong Kong market is too small for AI applications, what with the shortage of expertise and a large pool of data in the city. But regarding the development of blockchain technology and cryptocurrencies, what is needed is not only technological resources but also support from the financial system.
As an international financial center, Hong Kong can leverage on its advantages, such as a sound financial system and well-established international ties, and boost the city’s presence in the international community of blockchain technology. The sector needs more support from the government.
Most of the cryptocurrency exchanges now are supported by a strong technical team. They use the application interface (API) to automatically complete various transactions. In fact, these exchanges have formed a promising industry. On the other hand, social media platforms are widely adopted in the marketing of cryptocurrency, with investors discussing via Telegram and Twitter and attracting newcomers.
In my experience in investing in tech firms, I have learned there are lots of scam gangs involved in ICO projects. For me, I would assign a team of professionals to verify the authenticity of the projects, such as by keeping track of a company’s activities in online communities like Telegram and other social media channels.
Q: As the trade fight between the United States and China escalates, the tension is likely to ignite a tech war between the two major powers. As a professional investment institution, what do you think it would bring? A shock to your business? Or an opportunity?
A: I believe that the above environmental factors have little impact on our investment. However, I have never thought that the technology industry would become so much politicized.
I personally think it was a bit unfair for ZTE (The US government barred American companies from selling parts and services to ZTE). And I think the US media are biased in their coverage of Chinese companies. With regard to science and technology development, we should take a neutral stance. I believe that if the two countries complement each other in technology advancement, which they can do indeed, both will be benefited.
Should the relations between China and the US deteriorate further, I would say one of the most worrying things to happen would be for the US to arrest Chinese smartphone makers from using US-made components such as chips.
If that happens, it would be very painful for Chinese smartphone companies in the short run. However, in the long run, if the mainland is able to develop its own core technology in hardware, to lessen dependence on its geopolitical rival, it will be detrimental to the US.
Overall, I do believe the cloud over China-US trade dispute has a silver lining for Chinese and Hong Kong tech firms, which could drive them to invest more and step up efforts in developing the city’s own core technology.
Q: As far as we know, you are a Hong Kong native, working in the US while actively participating in projects in mainland China. From your experience, is it too late for Hong Kong people to “go north” to further their careers in the mainland?
A: I grew up in Wan Chai from childhood and Hong Kong has been my home. In recent years, I have been traveling frequently to the mainland, to cities like Beijing, Shanghai, Guangzhou, and Shenzhen, for business.
For Hongkongers who want to “go north”, it is never too late. In fact, there are quite a few Hongkongers who have built bright careers in the mainland. For example, Wong Kong-kat, known to friends and colleagues as KK, co-founded the smartphone maker Xiaomi. If you want to make a career in the internet, you must thoroughly study the mainland market before you decide which area you want to focus on.
For Hong Kong entrepreneurs who plan to enter the Chinese market, I think they should first understand the market demand, spend time chatting with mainland customers and users, and think about how to solve their problems and concerns.
The most important thing for these entrepreneurs is to be aware of the market size that they are targeting. If the potential market is too small, your film, even if it dominates the sector, may find it difficult to enter a big market as the next step.
I often ask my friends if they want to be a “big fish in a small pond” or a “small fish in a big pond”. A leader in the Hong Kong market is nothing compared to a player in the global arena. I think Hongkongers should be aggressive in competition. Try to do something that will make you proud after 10 years. When you keep trying to innovate and improve your business, investors will come to you.
The full article appeared in the Hong Kong Economic Journal on July 13
Translation by Ben Ng
[Chinese version 中文版]
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