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A couple of weeks ago I did a post highlighting some of the trends the team at Trinity Bridge Asia Ltd. noted during 2022. I thought I’d follow up with some observations on trends that I will be keeping an eye out for in 2023. The first thing to say is to beware of my skills as a fortune teller. In the 2022 post I noted that China was moribund and that I didn’t expect that to change soon. Within 24 hours the Chinese government had scrapped the zero-COVID strategy and on Sunday we witnessed some 400k people crossing the HK/Shenzhen border. Things change pretty quickly in Asia.

What does this opening up mean? I still expect a pretty difficult couple of quarters as we see the inevitable wave of infections but as herd immunity takes hold we are likely to see a rapid bounce back in economic activity and, for us, investing activity.

Another big macro-trend we will see in 2023 is India surpassing China in population. This is expected in April. The population India and China will both be 1.4b and change. Together, fully 35% of the global total of 8b. In terms of our sector, growth capital investing, we see a very lively domestic early stage and venture sector. We hope to see more interest from Indian investors in the later stage end of the market AND more foreign investors interested in successful Indian businesses wishing to grow outside India.

We did a piece of research work in early 2022 on the ESG investing in Asia. To be frank, I groaned (internally anyway) when we asked to do this project. I thought we’d see more PR than actually investing. I was wrong. Our key finding was that the asset owners (SWFs, pension and insurance companies) are putting pressure on the professional investors (including VCs and PE companies) to take ethnical investing seriously. I haven’t seen that trickle down yet into seeing a plethora of specific Asia ESG funds but that might well change. We are definitely seeing existing funds in technology investing take ESG more seriously as a factor in their decision making. This will only increase in 2023.

One specific space I see being important in 2023 is the advent of the circular economy and more specifically for our work the use of technology to facilitate that sector. I hope to see some really interesting companies in this space.

The re-gigging of supply chains is well documented elsewhere. One specific space where we are seeing this manifest itself is in reg-tech. Many of the KYC/KYB tech and data providers have seen a fall in due diligence work for China but with offsetting growth in SE Asia. This is not a super original insight but the winners from delinking are Vietnam, Malaysia and Thailand. I hope to see more opportunity for Trinity Bridge there.

In the next couple of weeks, I will do a third post in this series. I will be writing about trends in the American and global technology investing and how this might impact Asia. Stay tuned. 

Much has been spoken of the disruption that the pandemic has caused to businesses in terms of falling demand, disintermediation, disrupted supply chains and changing working practices. Yet little has been spoken about the impact on the board room and particularly around effectiveness.

As we moved into the second year of the pandemic, it is highly likely that most, if not all, boards have migrated from ‘in person’ board meetings to virtual or hybrid meetings with members dialing in or attending via Zoom or its equivalent.

While it is assumed that the form of such meetings have ‘ticked all the boxes of governance’ it would be pertinent to question the overall effectiveness given the format of the meetings. One area that may have suffered is strategy formulation especially when
for many boards it has become standard practice for at least one board meeting per year to be undertaken ‘off-site’ to enable directors to be immersed in big picture discussions away from the normal confined board room setting.

Now, more than ever, boards need to be engaged with management around key strategic
issues and how are the key big issues being addressed. Examples would include:

• How is the business dealing with disruption?
• Is the increased business volatility we have seen with Covid a temporary or permanent phenomenon?
• Are there new opportunities to be explored by moving along the value chain or through new adjacencies?
• How is the business getting closer to its customers using data and the elimination of intermediaries?
• Are there new ways of smart working that should be more universally adopted?

While vaccines are of course the hoped for ‘game changer’ in terms of enabling our lives to become more physical again, it is still unrealistic to think normality, in terms of board room operations, will return soon and that even another full annual cycle of meetings
may be subjected to disruption. At Trinity Bridge we strongly advocate that board agendas still need to include a professionally facilitated strategy session that involves third parties to provide the perspectives and sector insights to stimulate discussion and thought amongst the executive and non-executive members of the board and their management teams.

Navigating the HKSAR Government Funding Schemes for Businesses

In a conversation with Jewell Hui, Senior Consultant at J&K Consulting, Rob Agnew finds out more about the supports that the Government in Hong Kong are providing for technology and other firms in the Special Administrative Region. J&K is a specialist consulting company that helps companies navigate the rules and regulations associated with these supports.

1. What are the key supports being provided by the HKSAR government to help them through the present COVID crisis?

The HKSAR government has launched two major programmes, Employment Support Scheme and D-biz Fund (together, the “COVID Funds”), to provide financial support to various institutions in need. The applications for the COVID Funds have now closed. However, there are over 50 other regular government funding programmes (the “Regular Funds”) which are open for applications.

2. Beyond COVID what schemes does the government have to support start up and businesses wishing to expand in HK?

As mentioned, there are over 50 Regular Funds. Out of these, the following are some of the more common funds which any SMEs with a business registration certificate in Hong Kong may apply for.

1.  Technology Voucher Programme (funding amount up to HKD 600k)
2.  Export Marketing Fund (funding amount up to HKD 800k)
3.  Dedicated Fund on Branding, Upgrading and Domestic Sales (“BUD”) (funding amount up to HKD 4M)

It is possible for a corporation with a business registration certificate to apply for all three funds above concurrently. In other words, upon successful applications for the above three funds, a business will be able to obtain up to HKD 5.4M. Depending on the industry in which such corporation operates, it may also apply for other Regular Funds.

Any NGOs/ social enterprises may apply for the following.

1. Enhancing Self-Reliance Fund (funding amount up to HKD 3M)
2. Innovation & Technology Fund for Better Living (funding amount up to HKD 5M)
3. Social Innovation and Entrepreneurship Development Fund (“SIE”) (no stated maximum but the normal range is from HKD400,000 to HKD5M)

Any technology/innovative projects, with or without a legal entity, may apply for:

1. Pre-incubation programs in Science Park or Cyberport (standard funding amount of HKD100k)
2. Science Park Incubation programs (depending on the stage of application, standard amount from HKD 500k up to around HKD 6M)
3. Cyberport Incubation program (standard funding amount of HKD500k)

3. How is the process to apply for that support? And how long might it take?

The COVID Funds were relatively easy to apply for compared to the regular funding schemes, and generally it only took 3-4 months to obtain government approval. However, as explained above, the applications for the COVID Funds have closed.

For the Regular Funds, due to the mass application amounts, it generally takes 6-9 months to obtain government approval depending on the specifics of the scheme. You may still commence the projects before obtaining the government approval and get reimbursed after the approval is given for some of the Regular Funds. Also, be prepared that a substantial amount of time will be required to deal with the administrative work during the application process.

4. What are the three things that applicants need to consider before applying for support?

1. As all government funds are to support the Hong Kong ecosystem, it is necessary to have a Hong Kong Business Registration and invoices to prove the operation of the entity. Funding over HKD 1M or more, generally requires the applicant to be a Hong Kong company and proof of sales revenue.
2. If you have multiple related companies (having the same/overlapping shareholders), it is worth noting that some funds allow related companies to apply as separate entities. So, each company could have its own funding quota.
3. As government funds usually take a long time to process and you may perhaps only receive the funds by way of reimbursement, you will need to manage the Company’s cashflow carefully.

5. Are there specific sectors that the government is supporting?

Yes, there are different funds with specific industries targets, for example, new precision materials, Chinese medicine, logistics, robotics, fintech, university research-based projects.

6. What are the resources that you would recommend companies should use?
Please check out the various government links in relation to the details of each funding programme. Some are set out below:

1. Technology Voucher Programme: https://www.itf.gov.hk/en/funding-programmes/facilitating-technology/tvp/
2. Export Marketing Fund: https://www.smefund.tid.gov.hk/english/emf/emf_objective.html
3. BUD Fund: https://apply.bud.hkpc.org/index.php?lang=en
4. Enhancing Self-Reliance Fund: https://www.sehk.gov.hk/en/gov_fund.html
5. Innovation & Technology Fund for Better Living: https://fbl.itb.gov.hk/
6. SIE Fund: https://www.sie.gov.hk/en/who-we-are/sie-fund.page
7. Preincubation and incubation funds under Science Park: https://www.hkstp.org/innovate-with-us/incubation/
8. Preincubation and incubation funds under Cyberport:
   https://www.cyberport.hk/en/about_cyberport/cyberport_entrepreneurs/cyberport_incubation_programme

Also, we would recommend companies to investigate different government funds and align the business plan to the funding plan. This clearly identifies the fund you will be getting and at what stage and timeframe. Below is a case study which we have dealt with for your reference.

Case study: Existing business, an offline therapy centre. The client’s strategy under COVID restriction is to provide online therapy. Our advice on the funds to apply for to match to its business strategy was.

1. Applied D-biz Fund (around HKD100k) for zoom and other IT supports for online therapy. At the same time, leave some budget under d-biz to test the idea of creating an online therapy matching platform.
2. Applied for a small amount of loan from bank with an interest rate of 2.75% APR.
3. Applied for Technology Voucher Programme (up to HKD600k to support the technology development for the matching platform.
4. Applied Cyberport Incubation fund (HKD500k for marketing and development and, most importantly, to tap into the start-up ecosystem for investors)
5. Applied for Research Talent Hub (around HKD4M) to support 2-3 years IT development costs.
6. Applied for SIE fund (around HKD400k per project) for university research and data analytics and initial partnerships with NGOs.
7. Applied for BUD (around HKD4M) for expansion strategy outside Hong Kong.

You would expect that funding and the adequacy thereof would be front of mind for entrepreneurs, especially those of start-up and early-stage businesses. The past few months of economic disruption has certainly shone a light on this and by extension the need to raise new funds.

For most businesses pursuing a growth trajectory, it is normal for fund raising to take place at different stages or times of the corporate journey. This starts with founder capital, friends and family, angels and can be followed by several rounds of more institutional investment (be that from HNWs, VC’s. private equity or strategics).

Given that this process or journey is well understood by most entrepreneurs it remains surprising how often individual fund raising seems to take place at the last minute and in a vacuum with little regard to future funding rounds.

Most growing businesses will inevitably need to undertake additional funding rounds in the future and so it is surprising how rarely do management of such businesses establish a long term plan approach to fund raising that incorporates KPIs as to where the business needs to be prior to the next stage of funding. Instead the audible sigh of relief at having raised funds is followed by a head long rush to utilise the funding.

At Trinity Bridge we advocate a structured approach to the identification of the key milestones that need to be in achieved prior to the next funding round. These milestones will obviously vary according to the nature of the business but will include not only financial and operational targets but also other measures of business growth such as depth of management team, financial controls and governance.

Such a disciplined approach is desirable at each stage of funding in anticipation of future rounds but it is never too late to put in place such measures and can be supplemented by a series of diagnostic reviews of a companies operations and progress. These ‘quick and dirty’ reviews can be undertaken by experienced third parties reporting either to management or the Board directly.  Adherence to such a discipline should ease the process of the next round of fund raising.

What is the best way to enter markets in Asia? It is a question that we, at Trinity Bridge Asia, are often asked. Given the undoubted complexities of the region as a whole and of individual territories, our answer is often ‘it depends’. The answer lies in a rigorous examination of the local market characteristics assessed through the lens of the risk appetite of the organisation.

Trinity Bridge recommends that as a starting point it is necessary to do your homework through a structured qualitative and quantitative research project to evaluate the following elements:

Specific characteristics and ‘nuances’ of each market to be researched include:

• Market dynamics
• Demographic and wealth profiles of the specific target market,
• Consumer preferences including price sensitivities or ability to pay
• The structure of the market including the competitive landscape
• The extent to which localisation of a product or service will be needed
• Relevant regulatory considerations including any restrictions on foreign direct investment or ownership, trade issues and taxation
• Logistical and labour considerations
• Legal system and protections, especially in the area of intellectual property protection

The risk overlay will be case specific but frequently includes the extent to which an organisation wishes to retain direct control the brand and intellectual property, the potential of capital to be deployed and most critically the extent to which growth in Asia is central to the overall vision and business strategy.

While the resulting strategies are always business specific, the Trinity Bridge experience is that, as illustrated in the following diagram, there are five common strategies that businesses have used to successfully build business in Asia. They are: (1) distribution using a third-party; (2) the use of an outsourced “sales-only” agent to handle a sub-set of the sales process (lead generation, client servicing, etc.)  (3) where key intellectual property is licensed or franchised to another party; (4) a full-blown equity joint venture or partnership and (5) an investment in or acquisition of a potential competitor in Asia.

These approaches are not necessarily mutually exclusive and, in some cases, more than one will apply over time as the organisation’s knowledge and experience of Asia increases. In all cases however they will be tailored to reflect the nuances of each market as identified in the initial research. While success in Asia can never be guaranteed, it can never happen without the right level of local insight. In the short run this can be acquired but in the long term it must be earned.

For more information on market entry strategies for Asia please contact Rob Agnew, Partner and Co-founder of Trinity Bridge Asia ([email protected] or +852 6113 3158).