Venture capital for startups: definitions, funding stages, advantages, and challenges

Hong Kong’s startup ecosystem has seen remarkable growth since the city’s government launched the HK$2 billion Innovation and Technology Venture Fund in 2017. According to data released by InvestHK on 8 January 2025, the number of startups in Hong Kong reached 4,694, marking a 10% increase from 2023. As of the same month, the Innovation and Technology Venture Fund had invested over HK$410 million in 43 local tech startups. 

This article will take a deep dive into how venture capital works, the various funding stages, the advantages, and challenges of venture capital.

What is venture capital?

Venture capital is a form of private equity financing where investors fund ‌early-stage companies with high growth potential in exchange for equity. These investors can include angel investors, investment banks, incubators, financial institutions, and limited partners. 

In addition to capital, venture capitalists often offer further support such as mentorship, strategic guidance, and access to industry networks, helping startups accelerate their development.

Hong Kong’s venture capital market has experienced significant growth in recent years, with funding coming from both government initiatives and private venture funds. Notable venture capital firms and funds include Beyond Ventures and Gobi Partners. Startups can also participate in local and regional venture capital events, such as the StartmeupHK Festival and RISE Conference, to connect directly with investors and industry leaders.

How does venture capital benefit startups?

Startups often struggle with limited funding in their early stages, making it difficult to scale operations, develop new products, or enter new markets. Compared to established businesses, startups usually face greater challenges in securing bank loans or traditional financing. 

Venture capital addresses these challenges by providing crucial funding solutions tailored for startups, helping them overcome cash flow constraints, drive product development, expand into new markets, and grow their teams. These ultimately help startups to accelerate their business growth. Many local startups, such as Klook and Shopline received venture capital support in their early stages to fast-track their success.

Beyond funding, financial management is another major hurdle for startups. The Airwallex for Startups programme is specifically designed for members and incubatees of Cyberport and Hong Kong Science and Technology Parks who are new customers of Airwallex. The programme offers exclusive benefits, educational resources, and networking opportunities. These help startups simplify global financial operations and accelerate business expansion.

Stages of venture capital funding

Pre-seed stage

The pre-seed stage is the earliest phase of startup funding. At this point, capital typically comes from the founders themselves, as well as friends and family. The main goal of pre-seed funding is to help turn a business idea into an initial business model or product prototype.

Seed stage

By the seed stage, most startups have developed a minimum-viable product (MVP) – a basic version of the product with sufficient features for early users and initial market validation. Startups need to demonstrate their product’s market potential to attract further investment, which will be used for hiring key talent, building a management team, refining the product, and strengthening the business development plan. At this stage, funding can come from angel investors, incubators, and venture capital firms.

A notable local example is SHOPLINE, the eCommerce platform founded in 2013, which secured an HK$9.3 million seed investment from the renowned US accelerator 500 Startups in 2015.

Series A

At the Series A funding stage, most startups’ products have already achieved market validation and established a solid operational foundation. The purpose of Series A is to optimise the product further, expand the team, and prepare the company for larger-scale fundraising in the future.

Series B

Series B funding is geared towards startups that have already demonstrated strong market appeal and are ready for large-scale expansion. The capital raised in this round typically helps companies increase their market share, recruit additional talent, and scale up operations. This may include further product development, ramping up marketing efforts, enhancing customer service, and accelerating business expansion into new regions or customer segments.

Series C and beyond

By the time a company reaches Series C and subsequent funding rounds, it has typically established a mature and robust business foundation with a stable customer base. It should also have demonstrated rapid and sustained revenue growth. The primary goals of Series C funding are large-scale expansion, entering new markets, or preparing for an IPO. For example, Hong Kong-based surgical robotics startup Cornerstone Robotics completed a Series C round in 2025, raising over US$70 million. The startup said in a media release that the fund will support its expansion into European and Southeast Asian markets, as well as strengthen product R&D and clinical trials.

After Series C, some companies may continue with Series D, E, and further rounds to secure sufficient capital for even larger-scale expansion or long-term development. These late-stage funding rounds help startups consolidate their industry leadership and prepare for future IPOs or acquisitions.

Exit stage

After several rounds of venture capital funding, the ultimate goal for most startups is to reach the exit stage, letting founders and investors ‌reap capital gains from their investments. The most common exit strategies include an initial public offering (IPO) or acquisition by a larger company. An IPO involves offering shares to the public for the first time, while an acquisition means the startup is purchased by a larger enterprise. Exiting not only rewards early investors but also brings in new resources to help the company accelerate its next phase of growth.

Before reaching the exit stage, many startups go through a final “bridge round” of funding to ensure they have sufficient capital for pre-IPO marketing, regulatory compliance, and business expansion. These help pave the way for a successful IPO.

Advantages and challenges of venture capital

Advantages

• Access to capital: Venture capital provides essential funding for startups that may have difficulty obtaining bank loans or external financing. It provides startups with financial support for product development, talent acquisition, and business growth.

• Mentorship and professional support: Venture capital firms typically offer management experience, strategic advice, and industry knowledge to help startups improve operational efficiency.

• Extensive network: Venture capitalists bring valuable industry connections. This assists startups in recruiting talent, finding business partners, and expanding customer relationships.

• Enhanced credibility: Backing from reputable investors enhances a startup’s market credibility, subsequently attracting more resources and new opportunities.

Disadvantages

• Equity dilution: Venture capital firms typically exchange funding for equity, requiring founders to give up a portion of the company's ownership. This reduces the shareholding of the original stakeholders.

• Intense growth pressure: Venture capitalists usually expect high returns and often push startup teams to achieve rapid growth so that they can reach the exit stage as quickly as possible. This puts high pressure on founders to meet ambitious targets within a short timeframe.

• Complex fundraising process: Raising venture capital funding involves preparing multiple proposals, pitching to various investors, and undergoing due diligence. The process is time-consuming and can distract founders from their focus on business development.

• Challenging multi-source fund management: Fund management can become complicated when a startup receives investment from multiple venture capital firms. Startups can consider using Global Accounts to manage international funds in one place – create local currency accounts in over 60 countries and regions, save up on foreign exchange costs, and pay overseas employees and suppliers directly to streamline financial workflows.

Airwallex simplifies financial management for Hong Kong startups

Airwallex is committed to empowering the growth of Hong Kong’s startup community. The Airwallex for Startups programme offers various exclusive benefits for members and incubatees of Cyberport and Hong Kong Science and Technology Parks who are new clients of Airwallex. These include six months of free access to the Expense Management system and free issuance of Corporate Cards for your team, with cardholders enjoying 1% cashback on both local and overseas card spending.

In addition, the programme provides a wealth of educational resources to help entrepreneurs master essential financial knowledge and enhance operational efficiency. Airwallex for Startups also regularly hosts networking events, offering founders the opportunity to connect with fellow entrepreneurs and venture capital experts.

Whether you’re looking to reduce international payment costs or manage venture capital funds more effectively, Airwallex can tailor an all-in-one financial solution to help you stay on top of your finances and focus on scaling your business.

Sources:

The information regarding venture capital and startups in Hong Kong was sourced in May 2025 from the following references. This content is for reference purposes only. Please check media reports and visit the official websites of the startups and venture capital institutions for the latest details.

1. https://www.startmeup.hk/hong-kong-startup-scene-hits-record-numbers-in-2024/ 

2. https://www.info.gov.hk/gia/general/202501/24/P2025012400466.htm?fontSize=1 

3. https://hk.finance.yahoo.com/news/%E6%B8%AF%E7%94%A2%E7%8D%A8%E8%A7%92%E7%8D%B8klook-%E8%83%BD%E5%90%A6%E6%88%90%E7%82%BA%E5%BE%8C%E8%B5%B7%E4%B9%8B%E7%A7%80-002638078.html 

4. https://blog.shopline.hk/shopline-receives-alibaba-entrepreneurs-fund-2016/

5. https://m.orangenews.hk/details?recommendId=6250

6. https://hk.finance.yahoo.com/news/%E6%B8%AF%E7%94%A2%E7%8D%A8%E8%A7%92%E7%8D%B8klook-%E8%83%BD%E5%90%A6%E6%88%90%E7%82%BA%E5%BE%8C%E8%B5%B7%E4%B9%8B%E7%A7%80-002638078.html

7. https://www.mobihealthnews.com/news/asia/hong-kong-robotics-maker-scores-70m-series-c-funding-and-more-funding-briefs 

Disclaimer: This article was written in May 2025 based on independent online research. While we strive for accuracy, we have not personally tested all the tools or service providers mentioned. The content is for educational purposes only, and readers should evaluate service providers independently. We update our articles every six months. For updates and inquiries, please get in touch with us at [email protected]