In mid-2020, The Hong Kong Trade Development Council (HKTDC) Research conducted a questionnaire survey and in-depth interviews with local enterprises. According to the survey results, the start-up capital of local enterprises ranges from hundreds of thousands to millions of Hong Kong dollars. Many local enterprises disclosed that the initial stage of business was almost zero income, and the largest number of respondents (26%) believed that having sufficient sources of capital was the most critical condition for business development.
In mid-2020, The Hong Kong Trade Development Council (HKTDC) Research conducted a questionnaire survey and in-depth interviews with local enterprises. According to the survey results, the start-up capital of local enterprises ranges from hundreds of thousands to millions of Hong Kong dollars. Many local enterprises disclosed that the initial stage of business was almost zero income, and the largest number of respondents (26%) believed that having sufficient sources of capital was the most critical condition for business development.
Angel Investor
Angel investors, also known as Business Angels, are usually individuals with a certain net wealth (or private companies) who invest exclusively in early-stage start-ups and receive corporate bonds or equity in the future. Angel investors are often interested in projects for which they have relevant expertise or interests. In addition to providing financial help, angel investors also bring in some contacts or opportunities, and shoulder the role of mentoring and consultants.
Angel investors are a good fit for start-ups that are still searching for their own characteristics, capabilities and expertise. Angel investors can fill the gaps in the competency of the business owner and facilitate the further growth of the business. However, individual investors often lack the institutional backing and broader industry reach of other types of investors. Furthermore, they tend to act in their own personal interests and are not bound by any other stakeholder. If the vision and capabilities of the angel investors are inconsistent with the business owner, it may become a resistance to the future growth of the enterprise.
Venture Capital (VC)
Venture capital are usually fund investors or other investment firms that invest in start-ups. They typically target start-ups with high growth potential, and accept relatively high investment risks for the possibility of huge returns.
This type of investor is usually experienced in investing in start-ups and has the necessary expertise in guiding start-ups to their next round of financing. As long as the business continues to grow and reach its development goals, VC will be willing to use their resources and relationships to support start-ups and secure future financing.
Venture capital will not have a “personal” interest in the business. It’s only interest is to add value to the start-up and ultimately sell its shares through exit (such as a sale or IPO) to generate a return on investment for its stakeholders. Venture capital typically minimize their intervention in the management of well-run businesses.
Venture capital may be a good fit for more established start-ups, who place more value on a business’s clout, reputation and ability to raise further capital in the future.
Private Equity (PE)
Private equity funds are institutional corporate investors, usually investment firms run by large conglomerates, that invest in strategic start-ups. Bringing in corporate investors is often one of the surest paths to the success of a creative product or business idea because large corporate investors have the necessary internal resources to support the development of the enterprise.
In terms of financing, it is mainly raised from a small number of institutional investors or individuals through non-public means, such as hedge funds, leveraged buyout funds, strategic investors, pension funds, insurance companies, etc. Its sales and redemptions are conducted by fund managers in private negotiations with investors. In addition, the investment is also carried out in the form of private placement, and generally there is no need to disclose transaction details.
Choose the best financing method
Although start-ups are eager to raise capital at an early stage and tends to accept any kind of fundings, the truth is that while securing financing is important, choosing the best investor in the long run will determine how the business will operate for the rest of its life cycle and how much value it can deliver in the long run.
Business owners should ask, “Besides money, what do I most need from investors? Their industry background? Unique experience or knowledge? Network? Prestige? Company resources or structure?” Investors may continue to be involved in the ownership and management of the company throughout its life cycle, excluding other potential partners and influencing the future direction of the company.