Innovative funding platforms reshape startup financing landscape

HKEJ November 01, 2019 10:45

Investing in early-stage startups requires significant amount of capital and due diligence. For this reason, it was not quite for the average investor in the past. But the continued innovation of funding platforms now offers more investors with opportunities to take part in what was previously limited to a small group of venture capitalists.

The typical entrepreneurial story goes that the founder raises the initial funding from friends and family. When the business takes shape, it moves on to garner bigger funding from venture capital (VC) firms and institutional investors. And that’s how Pickupp, a B2C, C2C logistics platform that offers efficient, dynamic and low-cost solutions for merchants with delivery needs, began in 2016.

“Our seed funding was largely raised from friends and family members. When we were told about Cyberport’s incubation program in May 2017, we applied for it and were selected to join the program,” said Crystal Pang, co-founder and CEO of Pickupp, which is also an investee of the Cyberport Macro Fund (CMF).

By learning order distribution and merchant behavior, Pickupp can formulate a predictive pricing model with real time cost optimization that helps increase transparency and lower logistics costs for small- and medium-sized enterprises (SMEs). The company is now actively expanding out of Hong Kong into other Southeast Asian countries and cities such as Ho Chi Minh, Kuala Lumpur and Singapore.

“I also attend as many networking and startup events as possible to gain exposure and expand investor contacts. Working in a co-working space is helpful, too, as the start-up community is always keen to explore new ways to raise funds.”

The introduction of innovative funding platforms, such as crowdfunding and tokenization, now offer more financing channels for growing startups to secure capital to fund business expansion while giving a broader investor base access to early-stage investment opportunities. The goal is to streamline the funding process with the help of technology, enabling start-ups to overcome hurdles in reaching out to qualified investors.

For example, investment crowdfunding platforms allow young businesses to sell their equity shares to investors, who then become the shareholders so they get the potential for financial return. AngelHub is an example that focuses on connecting start-ups to professional investors.

AngelHub is the only equity investing platform focusing on the start-up ecosystem that is licensed by Hong Kong's Securities and Futures Commission (SFC). It provides access, time and know-how to start-ups and professional investors to democratize the fundraising process that was traditionally reserved to a small exclusive group of people.

“AngelHub does this by sourcing high-quality deal flow from all over the world, performs rigorous due diligence through its vetting process, and then offers professional investors an opportunity to invest in start-up companies featured on the platform. Investors will have access to all of the required due diligence information needed in order to make an educated and insightful investment decision in a timely manner,” said Karena Belin, co-founder, COO & CFO of AngelHub.

With a minimum investment ticket of US$10,000, investors can deploy funds through the platform across several opportunities and are able to select the companies they are interested in, she said.

The investment platform not only establishes a new asset class for professional investors who have an interest in the startup market, but also gives startups looking to raise growth capital access to a pre-qualified network of professional investors who invest in and support founders.

Actelligent, a Cyberport Creative Micro Fund (CCMF) alumni, offers another new investor matching platform that acts as a bridge between buy-side and sell-side. It goes beyond the role of an aggregator, but is taking an active role in matchmaking. Companies can now interact with investors from all over the world via multi-lingual webinars, said Charmaine Lo, CEO of the company.

“Investors can also send personalized requests and discuss in more detail with different companies and research analysts. Beyond matchmaking, Actelligent can help with initial screening as well as due diligence of deals and stock ideas. With Actelligent’s database and AI models, investors and companies can also do more benchmarking and channel checking in today’s interlinked world.”

Many of the new fundraising mechanism will be a complement to the existing fundraising approaches that we have today. These new technologies allow us to potentially raise funds more efficiently and more effectively, said Henri Arslanian, Chairman, FinTech Association of Hong Kong, PwC Global Crypto Leader, Asia FinTech Leader and Adjunct Associate Professor, University of Hong Kong.

"The costs and time spent on outdated processes and intermediaries, from legal documentation to share transfer, remains very high. I believe that some of the new technological tools, like blockchain based share registries for example, should hopefully bring these down. The real winners will be entrepreneurs and society more broadly."

Whilst new technologies and tools, like crowdfunding or blockchain, allow startups to raise funds more efficiently and effectively by reducing the ineffective paperwork or cost of intermediaries, he believes that the human element will remain key in investing for the foreseeable future.

“AI or automation still cannot replace human judgement, especially when it comes to early stage or startup ventures. The traditional approaches, from angel investors to VCs, will still remain present for a very long time.”

Investors and startups eager to learn more about innovative funding platforms cannot afford to miss the upcoming Cyberport Venture Capital Forum (CVCF), which will be staged on 5-6 November on the Cyberport campus.

In addition to panel discussions and expert presentations, the forum will feature an Innovator Showcase and Founder Stage to introduce attendees to some of Cyberport’s most promising startups and their projects. The exclusive Investor Matching platform will facilitate one-on-one meetings between tech entrepreneurs, international investors and potential industry partners. The CVCF will put you at the epicenter of the trending ecosystem on venture capital and beyond. Connecting capital, innovation, entrepreneurship and growth - the region’s signature venture conference you cannot miss!

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HKEJ

Hong Kong Economic Journal