Hong Kong is dynamic with engaged govt: FinTech venture capitalist

Hong Kong offers “dynamism” and an “engaged” government when it comes to the city acting as a launch pad for investors, says venture capitalist Robby Hilkowitz.

He was talking to Innovation Hong Kong on the sidelines of the Finovate Asia 2018 conference in Hong Kong.

The businessman, chief executive of H2 Private Capital – which when it looks at Asia mainly uses Hong Kong and Singapore as bases – provides early-stage, first-round money up to series A, for FinTech companies, with on occasions series B funding.

One of his firm’s investments is Neat, the Hong Kong-based virtual banking service provider founded by David Rosa, formerly a banker in the traditional financial services sector, and Igor Wos, who has a technology background.

Mr Hilkowitz said Neat was addressing a practical issue for offline and online businesses in Hong Kong.

Opening a conventional bank account in Hong Kong was, the investor noted, a “huge pain point” for small companies.

“Neat is a great Hong Kong-based business,” providing virtual bank accounts for merchants and allowing merchants to open bank accounts in about 48 hours, Mr Hilkowitz noted.

“I have never seen technology as a distinguishing factor. I wouldn’t invest in a business just because it’s great tech. As difficult as it can be to design great tech, it can be replicated,” he stated. “I want to invest in a business that can do something amazing with the good tech.”

He further noted: “If there’s a real business problem that a company is solving, in a good and efficient way,” that’s where the investment interest lies.”

Referring to Hong Kong, the investor said additionally that Hong Kong has “a good combination of good tech, dynamism, and engaged government.”

“The government here [in Hong Kong] sees something they want to do, and they do it,” said Mr Hilkowitz. “The government is engaged, regulation is engaged, and there’s alignment: there are a lot of [favourable] elements,” he added regarding the city’s investment landscape.

Investors’ debate

Earlier, on a discussion panel at the conference, Mr Hilkowitz had praised the work of InvestHK, the city’s inward investment agency.

“I’m not saying this because I am sitting here, but the guys at InvestHK were fantastic. I came to a Finovate conference here a couple of years ago, and just got to know the landscape and did some networking before I actually put some risk on the table and started making some investments,” he told the audience.

The panel was titled “Investors’ Debate: Where is the smart VC money investing in FinTech?” The session was part of Hong Kong FinTech Week 2018, presented by InvestHK and organised by Finovate.

The other members of the panel were Varun Malhotra, vice president of Quona Capital, and Hans de Back, partner at Finch Capital.

Mr Malhotra is based in Bangalore, India, where the company deals with early-growth funds covering businesses in South and Southeast Asia.

Mr de Back’s firm deals with FinTech businesses in Europe and Asia. In the latter case, the focus is on Singapore, Indonesia and Malaysia. Early-stage funding is usually “US$1 million up to US$5 million” with as many as four rounds “up to US$10 million”, according to Mr de Back.

“We are running two funds: the first US$50 million and the second US$150 million. We made about 35 investments in financial technology companies,” he told the audience.

Mr de Back noted that at the point his company gets involved, the target business typically has “a bunch of fantastic techies” running it, but not a professional management team.

“We try to help them with their hiring. We are very focused on the product’s market fit, and the whole ‘go to market’ strategy… In the end you are betting on the team. You [as an investor] are not going to replace the team because you think you are better than the team,” he told the audience.

Indonesia market size

Quona’s Mr Malhotra said that Indonesia was a key market for his company, because of its large population; many not served or underserved by the traditional banking sector. Indonesia also had a reasonably well-developed “regulatory ecosystem”. The Philippines was second in Quona’s thinking as a target market for investment.

He said one FinTech business in Quona’s portfolio was founded by a computer scientist from outside the Philippines who nonetheless spent several years in that country finding out where were “the pain points” in financial services.

“He then devised a product to cater to those problems, rather than working backwards” and trying to localise an existing product, said Mr Malhotra

Referring to the value of market size and Indonesia in particular, the venture capitalist stated: “Unless you have a large volume of deal flow coming in at the top of the funnel, there’s no way you are going to make really smart bets at the bottom of the funnel.”

While local founders of FinTech start-ups might have “natural” understanding of local market conditions, outsiders could have success, provided they were clearly focused in their efforts.

Mr Malhotra stated: “You need to be present. You need to live [and] breathe the product and the market. It’s very difficult to build businesses in places like Southeast Asia when you are sitting remotely and creating solutions for problems that don’t exist in that market.”