San Francisco, Berlin, London, Hong Kong, Tel Aviv, Singapore – the choices for start-up hubs seems to be endless. I personally incorporated my tech start-up in Hong Kong and I am frequently asked by soon-to-be founders if they should move to Hong Kong. It is easy to let ourselves be blinded by start-up events and a city’s marketing as a start-up hub. But what are the factors determining where you should start your business?
Firstly, let me give you the reasons for my personal choice: I started in 2014 and the product was targeted at women in China. Incorporating in the People’s Republic of China as a foreigner at that time was a bit tricky and also for legal reasons, my choice was Hong Kong. Before the so-called “Umbrella Revolution” – Hong Kong was the door to China. Businesses incorporated in Hong Kong had the benefits of easy access to the Chinese market paired with legal stability. Incorporating as a foreigner was straightforward as well: you needed to pay a Hong Kong secretarial company to act for you. All this, I could arrange online. I then flew to Hong Kong to open the bank account. Because of the product, Hong Kong absolutely made sense. I also love the city and had friends there. Hence, the move was quite easy for me.
Do You Have a Personal Network?
The start-up hot spots are very often romanticized and it seems so easy to run your business from there. While I do not say this is not true, I think it is crucial to have a strong network in the place where you would like to do business. Founding a business is always tough. Even if you stay in your hometown and you have a great social support network. Imagine that rollercoaster in a city where you are completely on your own, you still need to make friends and build a network. Speaking of “network”: I have always considered my network my friends. And I was lucky to have friends even before my move to Hong Kong. They were incredibly helpful: as soon as people heard I started my own business, they tried to contribute in any way they could.
Can You Incorporate as a Foreigner?
The most basic question is of administrative nature: Can you incorporate as a foreigner? If yes, do you need to pay a local company for administrative support? Or do you need a local partner or even director/majority shareholder in your business? Would this be a deal breaker for you?
Visa and Tax
Very often, it might be straightforward to incorporate a business but getting a visa for you to live in the country might be more difficult. In Hong Kong, I needed to prove a substantial amount of cash in my bank account in addition to my business plan, rental and further requirements. I also needed to have a Hong Kong permanent resident act as my sponsor. Can you meet all these requirements?
Needless to say, tax plays a significant role. Maybe not when you start out but definitely at a later profitable stage. Assess the environment on the one hand for your business, but on the other also for your personal tax situation.
Similarly, check the process for opening bank accounts. When I incorporated, the opening of an account was just a formality but it has become increasingly difficult. In many countries, you need to be a resident of that country to open an account – can you get a visa before that? How difficult is it?
Depending on your product, it is useful to assess the industry environment. If you try to start a fashion-related company, it is probably worth looking at cities with a strong fashion network. If you are in tech, you will need highly skilled programmers. Are you setting up a trading business and do you need access to factories? The industry and your product will have a huge impact on the choice of your business location.
I would never move to another country without having visited and assessed the environment beforehand. Similar to my article about Where to Move as an Expat, it is very important to get a realistic perspective: apart from a positive environment towards start-ups, what is the city like? Is it easy to network? Do you enjoy the vibe? Is it easy to find likeminded partners/employees? Is it a city which is great for a long weekend or would you really want to live there? Is it even possible to live there from a practical perspective. For example, can you rent a place without proving a steady income and only by providing your savings? And lastly, what are the language barriers?
Cost of Living
This is closely linked to my previous point. As a founder, capital and savings are important. I learned it the hard way by experiencing Hong Kong and Singapore. Both are cities which are amazing if you have high paying jobs. But what is it like if you have a very small or no income for some time? Can you even afford living there? Please calculate a burn-rate of how long you can live off your savings in that city: take your amount of savings and divide it by the sum of rental and living cost. The best way is to get some information from local entrepreneurs or friends. Also go to supermarkets, coffee shops and restaurants and assess the prices. How many months can you live there?
A factor which is frequently being overlooked when starting a business is the deregitration process. It is not something we really want to consider at the beginning, right? However, businesses can fail or environments may change and you might want to deregister the company, put it dormant or move it to another country. Do some research about the process and involved cost. If you really need to close your business, you surely want to avoid unnecessary costs or red tape which you may need to do in person.