Interview with Herman Lam, CEO of Cyberport
April 21, 2015
What is Cyberport and what does it do?
HL: Cyberport is a leading ICT hub in the Asia-Pacific region. Our goal is to create an ecosystem where we can facilitate the local ICT community, where one of the key focuses for us, of course, is entrepreneurship, so we have started this journey quite a few years ago and we look at the whole life cycle of entrepreneurship. We go all the way back to inspiring the youth, we do a lot in education – let’s put it this way, to educate them about ICT, to educate them about entrepreneurship and other things, and once they move along the life cycle they enter the stage where they want to turn ideas into prototypes or they want to build companies, then the incubation period will kick in, so the second stage that we do is incubation. We incubate a lot of companies and we incubate a lot of projects. We also provide working space for companies that are perhaps not in our program but want to be part of our community, and they can do that as well.
Altogether we are very proud to say that this platform is already close to some 500 companies and that is a very big scale however you want to measure this. The next stage in the life cycle, however, is that now we have built the base some of them will want to be an SME which is fine, they can continue to contribute to the economy and we need SME’s in this ecosystem. Some of them have bigger aspirations, they want to go IPO, they want to go attract big investors, and they want to expand globally, then we have this collaboration programme that kicks in. So we want to help people to launch their business, to get to their customers, to get to investors, wherever they are, and so we have this programme as well. So, it’s really trying to provide a one-stop platform to facilitate that and by doing so we hope to create a big ecosystem that will help Hong Kong, that will help Asia-Pacific to be the place for innovations.
What are the most interesting trends in Asia today?
HL: That’s actually a very interesting development. We started the whole journey about five, six years ago, and we have actually seen two sorts of streams that I want to talk about. One is the development of the ecosystem, the other one is about what sort of start-ups we are seeing now, and we’ll start with the first one. When we first started the journey back in 2006/2007, right now we have 500 companies on our platform, we are very happy and looking for the next big thing, but just like many other stories we have a very humble beginning. So when we started in 2006, our first batch of incubation, we called for applications, and we got 27 applications. We admitted 12. 9 of them graduated. Today, 2015 how many of them are still alive or active? We have 5 still active, which is a pretty good ratio, but you know it’s a very humble beginning. And then we saw a lot of people coming and engaging in this area, last year alone we received over 900 applications to our programmes, and right now on the platform we support, as I said, 500 of them. So that development is very interesting.
At the beginning we did not have enough founders, not enough entrepreneurs, and now we have them, gradually, and in 2-3 years we see a lot more applications, a lot more people coming forward who want to do their start-ups and then the next problem comes, there is not enough capital, not enough money, not enough VCs and what not. Of course we can always use more money, there is never going to be enough money, but we have seen this issue sort of improving significantly over the last two years. Take our Cyberport as an example, in the last 24 months or so, we have actually attracted some HK$300 million invest in to some 38 companies at Cyberport, and of course, again we can always use more money but this is actually a very significant improvement. If I recall, the first 2-3 years the number we can track was HK$2-3 million, that’s about it, so again it has very quickly developed.
Now, it seems we have a lot of investors, a good amount of money coming into the ecosystem, what’s next? I keep on hearing coders, programmers, technical resources, and I think Hong Kong is a very vibrant place, very diverse, very out-going, I think we will be able to resolve this problem with different means and of course once this problem has been resolved, there will be another issue we will be facing, and that’s the dynamic, that’s the life cycle. So that’s the development of the ecosystem by itself.
The other one I want to talk about is the type of start-ups we see, which are very interesting, very unique to Hong Kong, or to the metropolitan cities. Back in the good old days, perhaps back to 199-something, when we talk about tech start-ups what are we talking about? We’re talking about chipset design companies, we’re talking about networking companies, we’re talking about, perhaps, ERP companies. All of those are really pure tech, so that is why you see a lot of those coming up from Silicon Valley, they have the franchise on that, they started back in 1938 when they were thinking in their garage, so they have a long history and a very mature ecosystem so they have many talents in their ‘tank’.
But then you think about the recent paradigm and it’s a little bit different. We’re talking about tech start-ups, so what are we talking about? Dragon Law for example, you’re on the legal tech. A lot of companies are on the fin-tech, a lot of companies are on the e-commerce tech, a lot of companies are on the e-marketing tech and for a lot of these things it’s no longer just ‘tech’ tech, it’s a tech with a domain industry. So suddenly you need to have experts from both worlds to make it work. I think that’s one of the reasons why Hong Kong has so many start-ups, it’s become so lively, because we are very strong, as people know, in our legal system, our financial system, our logistic system is a logistics hub, we have a lot of retail, a lot of tourists, we have a lot of people who are crazy about education, our e-health system is very advanced. If you think about it we have a lot of talent, a lot of creative ideas and innovation and it is ready to be unleashed.
How to overcome talent constraints?
HL: Well if you ask me I think this whole ‘we need more coders’ phenomenon we are in the middle of that, so I don’t know if I have the answer to that question just yet, but I think they are very agile and will be able to navigate through whatever it takes to be successful, I think they can somehow find a solution to that. But on a more high level scale, in the broader sense, I think first of all, it’s the maturity of the ecosystem I always refer back into. I mentioned that from not having enough founders to having more founders, from not having enough angels to having enough angels, it all takes a bit of time, it also takes a little bit of understanding of what exactly this is.
The good news now is that I think the whole tech start-up opportunity is at a centre stage. We are on TV programmes prime time, we are on the front page on newspapers and now more people understand, OK there is an opportunity there. By nature you attract more talent when you engage in this area. You mentioned interestingly that some talents like to work for established companies, because that’s the only thing they know before, but now they are suddenly realising that there may be another alternative for them. I’m positive, I’m hopeful that we will see new talents making choices now, so that’s one very healthy development.
Another one is, I think a focus of ours, education. It will not solve the problem today, but by going back to engage with more students, even perhaps at a secondary school level, we will create a group of people who are interested in technology and ready to do that. One statement that I really like is that the people who can master the skill of coding are like wizards in the old days. They can do things that ordinary people cannot do, and I hope more students, more talents, more bright minds will see that as well. There is no lack of smart people in Hong Kong, but do they see this as an opportunity, I mean it is an opportunity to work, but I guess now, a lot more than a few years ago, it will be even more so two years from today. When we started this journey five years ago, very few of us were engaged in this area. Now we have a much bigger ecosystem and give us two more years, I think the whole thing will grow very quickly and will exceed many people’s expectations.
What do you look for in the companies you invest in?
HL: First of all, we have a very interesting system. I actually sit through all the interviews, but I myself do not score them. We form different panels, every time it is different. The reason for this is very simple, if you open my closets all the ties look the same. They have the same pattern, carry similar colours and if you come up to me it will be matched with my blue shirt and jacket. So, I think the way to bring diversity is really to have different panels of judges so they are able to bring in their own flavour to the programme and that’s one thing I like about the programme. So there is no definite one size fits all approach, we encourage diversity that’s number one.
But if you ask me there is one sort of similarity definitely, I think most of the judges are looking for the characteristics of the team members. They like team members that are committed, they like team members that are dynamic, agile, and I think those are the things that people look for, it seems like they have a better chance to hang in there in the whole entrepreneurship journey. After all it’s not an easy journey. Some much work that we try to do from education, to providing incubation, to providing collaboration with markets, all we try to do is to make it a little bit easier and provide a platform. But you know what, it’s never going to be easy, so they have to look for individuals that will be able to take up that challenge, I think that’s important.
The other one I think they are looking for is creativity. They want new ideas, they want to see things that perhaps are not maybe always really big change that will disrupt this and that, but will just give us a fresh idea. Its like if it’s a bright Sunday then you go out and feel happy about that. That’s the two or three things. Sometimes people think do we need to have a very good financial model, do we need to have a hockey stick, and that sort of thing. For us it’s a little bit different. First of all we incubate companies that are very early in their stage, so I think judges tend not to look at the financial projection as closely as some others who are perhaps investing in the more mature stage of start-ups; that’s number one. Number two, due to the nature of Cyberport we are government-backed so in a way we are not looking for a 10x, 20x, 30x return for the project that we support. If we support projects that turn out to be SME’s and they employ some 20-30-50 people that’s also beautiful, so for us that’s perhaps a little bit different. But for others, if you go and pitch for a VC for example, I think it’s important to have a very good financial projection, so we are different from them.
What do you look for in a business plan?
HL: I think the first thing that people like to look at is why are you passionate about this problem, where did it come from. You’ve got to have the passion, that’s number one. Number two is that you’ve got to be able to explain to people why you think your target customers will be interested in this, why there could be tractions. It has to, in many cases, be related to solving a real problem for them, or opening up an opportunity for them, so that also is important. And the next thing is, how are you going to go about doing it at the early stage. How do you think you want to form a team, how do you think you can attract the first batch of capital to support your company to get going on top of the money we are ready to release to you. So these are all the things I think are important for the businesses to understand, this is an idea that is interesting, this is an idea that can get traction, this is the team that is ready to commit to execute the idea, and they have the sort of idea that can get through the first two or three months if not six to twelve months.
What do you need to get right to succeed?
HL: I wish there was like a silver bullet, but there is not. I think that people who succeed at it, or didn’t make it, they very often carry a similar character so I don’t think we can sort of categorise them and stereotype them into different categories. So I guess number one whether you picked on the right idea is important. Luck is also important I think and timing, everything counts its difficult. My advice is people who apply to our programme don’t take no as an answer, that’s important for a start-up, you will face a lot of ‘no’s’ on your journey. Every no is another step closer to yes.
What mistakes do you need to avoid?
HL: Again there is no silver bullet for that. I do not think there is one way to success and one way to fail. One thing though that I don’t think, I guess the situation has improved now we have more angels and VC’s playing in the market so you get more choices I guess. Sometimes the terms can be very harsh for start-ups, particularly in the beginning when they need money, so sometimes they can commit the mistake so that they lose the whole company. But doing that there are two issues. First of all you lose the company basically, but more importantly you lose your passion because in the end even if you make it, it becomes somebody else’s not yours, you’re just there to make it work and someone else takes all the benefits. I also advise investors to leave some room for the founders so they can share a significant portion of the success because in the end you want them to work 24 hours a day, 7 days a week to make it work, and if you’re not giving them things how can they do it for you?
What is your advice on how to fund new start-ups?
HL: Again every different start-up will have a different approach on how they want to do this. Overall in Hong Kong, as I mentioned, I see the development of having funding; it’s actually encouraging. The thing is I look at it from two angles. First of all is the local participant. If you refer to the example in Silicon Valley, a lot of the VCs a lot of the angels, a lot of the money comes from people who have done it and have made their fortune from building start-ups and therefore the next investment is going to be start-ups. In the Hong Kong situation, many of the companies or wealthy people make their money by doing finance or doing something similar, so it’s only natural for them to look at the next investment by looking somewhere they are familiar and comfortable with. The good news about this is that they start to experiment with start-ups, and if more and more of them get some success out of this, then you will see the liquidity of the investment market improving. By having better liquidity you will get more people engaged and I think the cycle really gets started in the local market so this is very good news.
And then on the other hand I think we also have a good opportunity to do it just like in Silicon Valley as we now have quite a significant backdrop of entrepreneurs. It started 5-6 years ago, some of them are making money and this bunch of people have made their money doing, guess what, start-ups so guess what their next investment is going to be in, start-ups. So we have maturing generations of entrepreneurs, which is going to help the situation also. In the very short term though, I think another piece of good news is that we are seeing some international money and mainland money looking at the Hong Kong project. I can reference a couple of cases. Cherrypicks gets acquired by Net Dragon for HK$200 million. GoGoVan just got the last investment from Renren, which is China’s version of Facebook, they got a US$10 million for 10% of their company. This is all mainland money, they also get money from Singapore, they get money from Silicon Valley, so that’s also good. Before you would hear people saying they would not invest money outside their territory, “More than 30 minutes driving; I’m not interested”. That is changing, and the reason is very simple. If they know that their money is going into this company, more money will follow.
And also I think that as a start-up entrepreneur, if you have the vision to grow beyond the Hong Kong markets, you’ve got to be open to going to visit some other places, be open minded to do your pitching and accept what you have to do. I think that’s why we organise so many of the mainland offices delegations and exhibitions, everyone is an opportunity to attract investors in those markets as well. So while we are maturing the local ecosystem we also want to tap into more mature ecosystems. Of course it’s not perhaps as good as being there, from some perspective but you can take advantage of that and form a strong relationship with them, which we already have with a lot of places in Hong Kong. The other thing is that in doing so we can leverage the benefit of Hong Kong, if you are doing a legal pack for example, you have a whole legal environment, trying to hire a lawyer from Hong Kong, I think Hong Kong has a lot to offer as well. So in that sense I think, as an entrepreneur, you’ve got to be able to leverage wherever gives you the best. It’s a global village now, and we are global citizens.
Three final pieces of advice?
HL: I think entrepreneurship has suddenly become a hot topic in Hong Kong. My advice to all those potential founders is first of all understand. You really have to understand what is going on. What does it mean to start a company? So find an opportunity to engage, take an internship in a start-up company, attend some of the start-up events, talk to real founders and see what they have to tell you to understand. Second you have to commit, it’s not an easy journey, there will be problems that you need to overcome, so 100% commitment is required to take this forward. The third point is to be agile. Resources are everywhere but you have to look for them, they don’t necessarily come and look for you, so being agile is a very important thing. But it is also important to be agile enough to say no to your projects and move on to a new one if they proved to be something that doesn’t necessarily work at that moment in time.