The fintech sector has been pretty sluggish in the first half of 2023 and the venture capital investment in the industry slowed down. Reportedly, the funding into global fintech companies dropped 49% year-on-year to $23 billion in the first half of 2023. There was also a drop in the average value of the round across stages.
Despite the fintech funding slump, the news is recently in that Hong Kong-based financial technology company Micro Connect has bagged a whopping $458 million in a Series C funding round, at a valuation of $1.7 billion. With this round, Micro Connect has become the latest Hong Kong fintech unicorn. Previously, the company was backed by the likes of Hong Kong billionaire Li Ka-Shing and property tycoon Adrian Cheng.
The latest investment round saw participation from new investor Baillie Gifford, a Scottish investment firm that’s backed tech giants Amazon and Tesla. The round also saw contributions from returning investors, including billionaire Neil Shen’s Sequoia China, Lenovo Capital, Vectr Fintech, and Dara Holdings. With this round, Micro Connect’s total equity raised accounts for $578 million, which follows the $70 million Series B round raised last year.
Baillie Gifford’s strategic investment in Fintech
Edinburgh-headquartered Baillie Gifford aims to produce long-term capital growth by investing in an actively managed portfolio of Chinese companies. Micro Connect aims to fund small businesses that fail to qualify for bank loans for expansion. The potential universe of such businesses in mainland China includes 40 million small and medium-sized enterprises and 90 million self-employed individuals, as per the government data from 2022. This is where the contribution of Baillie Gifford helps, as this investment will take it towards portfolio diversification.
Fintech disruption and growth in Hong Kong
Hong Kong is an international fintech hub characterised by a diverse, resilient, and dynamic landscape. Although a relatively small city, it punches above its weight as one of the most productive markets for fintech startups to rapidly scaleup. Despite disruptions to global economies, Hong Kong’s fintech landscape has gone from strength to strength.
Notably, the financial services sector remains one of Hong Kong’s most important economic pillars and accounts for 21.3 percent of the city’s GDP. The high penetration of mobile phone usage and internet accessibility in the city is accredited for the growth of this sector. Some of the best fintech prospects in the city include digital payments, electronic Know Your Customer (KYC) and digital identification utilities, insurtech, wealthtech, blockchain, and regtech.
Unicorn ecosystem in Asia-Pacific
The Asia Pacific region continues to see more unicorns as technology enables businesses to expand and achieve more possibilities than before. This dynamic region offers a fertile ground for entrepreneurial endeavours. The Asia Pacific region encompasses a wide spectrum of countries, ranging from the economic powerhouses of China and India to developed nations like Australia and Singapore.
While China dominates the continent in terms of unicorns and startup valuations, Hong Kong is in a notable position. Hong Kong’s startup environment has produced some notable unicorns in the last year despite the market slowdown.
In Hong Kong, more and more startups and unicorns are thriving, and many international entrepreneurs have migrated to the city. Since 2017, the number of startups in Hong Kong has increased by more than 50%. With its strategic location near China’s manufacturing hubs and linkages to Europe and the United States, the city has a thriving startup and unicorn environment that no one can afford to ignore.
Billionaire backing and entrepreneurial success
In recent times, billionaires have invested in fintech startups due to the sector’s disruptive potential and lucrative opportunities. Fintech innovations reshape traditional financial services, offering efficient, accessible, and technologically advanced solutions. These billionaires recognise the transformative impact of fintech on global finance, seeking to capitalize on its growth and gain a strategic edge in a rapidly evolving industry. By backing fintech startups, they aim to shape the future of finance, diversify their portfolios, and tap into new revenue streams driven by digital transformation and changing consumer preferences.
Role of fintech in Hong Kong’s economic transformation
The achievement of this fintech unicorn closely harmonises with Hong Kong’s overarching economic transformation objectives. Fueled by its remarkable success, the fintech sector not only reinforces Hong Kong’s status as a global financial center but also amplifies its ambition to cultivate a diverse and resilient economy. The investment in Micro Connect exemplifies the city’s commitment to embracing technology-driven advancements, aiding in the expansion beyond traditional finance.
This shift not only attracts international investors but also bolsters local entrepreneurship, thus fostering an ecosystem conducive to innovation. As fintech pioneers flourish, Hong Kong strategically positions itself as a dynamic hub for cutting-edge financial services, thereby enhancing its competitiveness and solidifying its role in the technological evolution of finance on a global scale.
