What sort of startups should government support?

Raymond Tsoi April 07, 2016 16:45

Our government should put innovation value before financial return in deciding which startup to support. Photo: Internet

To tech startups, Chief Executive Leung Chun-ying’s announcement of a HK$2 billion innovation and technology venture fund is by all means good news.

The key question is how should the money be spent, or more precisely, what sort of startups should receive government funding support?

Dr. Dominic Chan, honorary project director of the Centre for Entrepreneurship at the Chinese University of Hong Kong, suggests we can take a leaf from Israel, arguably the second most successful startup hub after Silicon Valley.

Chan met Israel’s Chief Scientist Avi Hasson in May last year. Being responsible for allocating government funding to tech firms, Hasson shared the logic behind his decisions with Chan.

“When I came on board, the first question I asked my colleague was the percentage of projects that we have fully recovered the seed money. If the number is 70 percent, then that’s too high. That means we are not taking enough risk,” Hasson said.

Hasson’s view is that the government shouldn’t be thinking like private sector investors, who are usually after a quick return and tend to care a lot about whether a project can survive.

The government is there for a different reason, to play a different role, he said.

“Hasson is telling us the government should not compete with private investors for projects the latter prefers,” Chan wrote in his Hong Kong Economic Journal column.

For projects that are highly likely to be commercially viable and profitable, there will be enough angel investors chasing stakes.

The government should focus on what the market is overlooking or reluctant to support.

These are ideas that can potentially disrupt an industry, but ideas that are hard to predict at an early stage whether they would really work.

The Media Lab inside Massachusetts Institute of Technology is one good example. At the globally renowned innovation hub, researchers are free to pursue almost whatever they are interested in, Chan said.

It does not require a business model, nor are there any achievement targets.

Exactly because there are no economic strings attached to a project, Media Lab has created huge value and has become an important source of inspiration for the world.

If our government wants to bring the biggest impact to Hong Kong’s technology scene, it should be doing something like that too – take a more aggressive approach to incubate companies with groundbreaking but untested ideas, Chan said.

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Raymond Tsoi

EJ Insight writer

Hong Kong

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