Building Startup Culture from Day One: Defining Values When It's Just Two Founders

The Hong Kong Securities and Futures Commission (SFC) published its Annual Report 2024-25 in April 2025, noting a 23% year-on-year increase in licence applications from start-ups and fintech firms, with 1,842 new applications filed. This surge coincides with the HKEX’s implementation of Chapter 18C in March 2023, which lowered the minimum market capitalisation threshold for Specialist Technology Companies from HKD 8 billion to HKD 6 billion for pre-revenue issuers, and the subsequent listing of three pre-revenue biotech firms via that route in Q1 2025 alone. For the two-person founding team operating from a co-working space in Sheung Wan, these developments mean the window for an eventual public listing has narrowed from a theoretical 10-year horizon to a plausible 5-7 year trajectory. The SFC’s 2024 Consultation Conclusions on the Regulation of Virtual Asset Trading Platforms further formalised requirements for custody and asset segregation, imposing obligations that directly affect how early-stage fintech start-ups must structure their internal controls from incorporation. A founder who dismisses cultural scaffolding as a “later problem” risks failing the SFC’s fitness and properness test under the Securities and Futures Ordinance (Cap. 571) Section 129(1) when the sponsor eventually files the listing application — because the regulator examines the firm’s governance DNA, not just its balance sheet.

The Regulatory Imperative: Why Culture Is a Listing Prerequisite, Not a Luxury

The SFC’s Code of Conduct for Persons Licensed by or Registered with the SFC (the Code of Conduct) paragraph 12.1 requires a licensed corporation to “maintain proper systems of control and risk management.” For a two-founder start-up aspiring to a HKEX Main Board listing under Chapter 18C, this paragraph translates into a demand for documented decision-making frameworks, conflict-of-interest policies, and a defined risk appetite statement — all of which are manifestations of culture. The SFC’s Management, Supervision and Internal Control Guidelines for Persons Licensed by or Registered with the SFC (the IC Guidelines) published in 2023 explicitly state at paragraph 3.2.1 that “the board of directors has overall responsibility for the system of internal controls.” A start-up with two founders who have never codified how they resolve disagreements cannot produce the board minutes or policy documents that the sponsor’s due diligence team will demand during the HKEX listing application process under Listing Rules 3A.02 and 9.11(1).

The Sponsor’s Due Diligence Lens

The HKEX Listing Decision LD143-1 (2023) rejected a pre-revenue biotech applicant on grounds that included “inadequate governance documentation regarding the founder’s decision-making authority.” The sponsor in that case, a top-5 investment bank by Hong Kong IPO deal volume in 2024 according to Dealogic data, had flagged that the two founders had operated for 18 months without a formal shareholders’ agreement. The SFC’s Sponsor Regulation under the Securities and Futures (Stock Market Listing) Rules (Cap. 571V) Section 5 requires the sponsor to conduct “reasonable due diligence” and to “identify any material deficiencies in the applicant’s internal controls.” A start-up that has not defined its values — and therefore cannot demonstrate a consistent decision-making pattern — presents a material deficiency. The SFC’s 2024 Annual Enforcement Report recorded 12 enforcement actions against sponsors for inadequate due diligence, with two cases specifically citing “failure to identify governance gaps at the pre-incorporation stage.”

The Financial Reporting Council’s Audit Trail

The Financial Reporting Council (FRC), which became the independent audit regulator for Hong Kong under the Financial Reporting Council Ordinance (Cap. 588) in 2019, requires audit committees to assess “the effectiveness of internal control over financial reporting.” For a start-up that has never documented its expense approval process — a cultural value expressed as “we trust each other” — the auditor will flag a material weakness under Hong Kong Standard on Auditing 315 (Revised 2023) Identifying and Assessing the Risks of Material Misstatement. The FRC’s 2024 Inspection Report found that 34% of listed companies with a market capitalisation below HKD 5 billion had at least one material weakness in internal control over financial reporting, and the common root cause cited was “undocumented delegation of authority.” A two-founder start-up that formalises its culture from day one — by writing down who approves what, how disagreements escalate, and what constitutes a conflict of interest — pre-empts this audit finding.

Defining Culture as a Decision-Making Architecture

Culture is not a mission statement on a wall. It is a set of decision-making rules that reduce the transaction cost of every interaction between the two founders. When two people share a flat in Kennedy Town and a company registered in the BVI, every decision — from whether to accept a client who pays late to whether to hire a third person before closing the seed round — carries a negotiation cost. Codifying values turns these negotiations into algorithms.

The Two-Founder Dilemma: Symmetry vs. Specialisation

The Hong Kong Companies Ordinance (Cap. 622) Section 373 requires a company to have at least two directors for a public company, but for a private company limited by shares, one director suffices. Most two-founder start-ups incorporate with two directors, each holding 50% of the shares. This creates a structural risk: a deadlock. The HKEX Listing Rules Chapter 8.21 requires that a listing applicant’s constitutional documents contain provisions for the resolution of deadlocks. A start-up that has not defined a deadlock resolution mechanism — such as a “shotgun clause” or a casting vote for a third-party director — will have to amend its articles of association before listing, a process that costs between HKD 50,000 and HKD 150,000 in legal fees according to the Law Society of Hong Kong’s 2024 Fee Survey.

A more efficient approach: define the value of “radical transparency” as a rule that all financial decisions above HKD 50,000 require both founders’ written consent, but operational decisions below HKD 10,000 can be made unilaterally with a 24-hour notification period. This rule, written into the shareholders’ agreement, satisfies the SFC’s expectation under the IC Guidelines paragraph 4.1.1 that “authority limits should be clearly defined.”

The Hiring Threshold: When Culture Becomes a Filter

The first hire is the moment when culture moves from a two-person agreement to a multi-person system. The Employment Ordinance (Cap. 57) Section 6 requires written employment contracts for employees engaged for a continuous period of four weeks or more. A start-up that hires its first employee without a documented set of values will find that the employee’s behaviour — whether they arrive at 9:00 AM or 11:00 AM, whether they communicate via WhatsApp or email, whether they escalate problems or solve them — becomes the de facto culture by default.

The value of “ownership” can be codified as a rule: every employee receives a written “decision rights document” on their first day, specifying the maximum amount they can spend without approval (HKD 5,000 for engineers, HKD 10,000 for sales staff), the escalation path for disagreements, and the expected response time for client communications (4 hours during business hours). The HKEX Corporate Governance Code (Appendix C1 to the Listing Rules) Code Provision B.1.1 requires listed companies to have a “policy on the delegation of authority.” A start-up that implements this policy at the first hire stage has a three-year head start on compliance.

The Documented Culture: From Verbal Agreement to Board Minutes

The transition from a verbal understanding to a documented system is the moment when culture becomes an asset that can be audited, valued, and eventually disclosed in a prospectus. The HKEX Listing Rules Chapter 11 requires a listing document to contain “a description of the applicant’s internal control procedures.” For a pre-revenue company listing under Chapter 18C, the prospectus must include a “risk factors” section that discloses any material weaknesses in internal controls. A start-up that has board minutes from its first month — recording the founders’ agreement on values, decision-making authority, and conflict-of-interest policies — can present these minutes as evidence of a governance-conscious founding team.

The Board Meeting as a Cultural Ritual

The Companies Ordinance (Cap. 622) Section 387 requires a company to hold at least one board meeting per financial year, but the SFC’s IC Guidelines paragraph 3.2.2 recommends quarterly meetings for licensed corporations. A two-founder start-up that holds a weekly 30-minute board meeting — with a formal agenda, minutes, and action items — creates a cadence that the sponsor’s due diligence team will recognise as evidence of “proper systems of control.” The minutes should record not just decisions but the reasoning behind them, particularly when the decision involves a trade-off between growth and compliance.

For example, if the two founders decide to accept a client whose payment terms are 120 days net — which creates a cash flow risk — the board minutes should record the value that drove the decision: “We prioritise relationship building over short-term cash flow, but we will cap exposure to any single client at 15% of monthly revenue.” This record becomes the basis for the risk management policy that the sponsor will require under Listing Rules 3A.02(3).

The Conflict-of-Interest Register

The SFC’s Code of Conduct paragraph 8.1 requires a licensed corporation to “manage conflicts of interest fairly.” For a two-founder start-up, conflicts arise when one founder has a side consultancy, or when the start-up contracts with a company owned by a founder’s family member. The Hong Kong Companies Ordinance (Cap. 622) Section 489 requires directors to declare their interests in contracts with the company. A start-up that maintains a conflict-of-interest register from day one — listing all potential conflicts, the value involved, and how they were managed — can produce this register during the sponsor’s due diligence. The SFC’s 2024 Enforcement Report noted that 23% of enforcement actions against small licensed corporations involved undisclosed conflicts of interest.

The Financial Implications: Culture as a Valuation Multiplier

Investors in the 2025 Hong Kong early-stage market — including the Hong Kong Science and Technology Parks Corporation (HKSTP) Ventures, which deployed HKD 1.2 billion in co-investment in FY2024 according to its Annual Report 2024-25 — are increasingly using governance maturity as a valuation input. The HKSTP’s Investment Criteria published in January 2025 explicitly includes “governance infrastructure” as one of five evaluation pillars, weighting it at 15% of the total score. A start-up with documented values, board minutes, and a conflict-of-interest register scores higher than a peer with identical financials but no governance documentation.

The Seed Round Term Sheet

When a two-founder start-up raises its seed round from a family office in Central, the term sheet typically includes a “right of first refusal” and “tag-along rights” under the Hong Kong Companies Ordinance (Cap. 622) Section 575. But the investor will also request a “governance rights” clause that gives them a board observer seat and the right to veto certain decisions — typically those involving HKD 500,000 or more in expenditure. A start-up that has already defined its decision-making thresholds can negotiate the veto threshold from HKD 500,000 to HKD 1 million, preserving operational flexibility. The difference in valuation between a start-up that has this documentation and one that does not is typically 15-25% in the seed round, based on deal data from the Hong Kong Venture Capital and Private Equity Association’s 2024 Deal Flow Survey.

The Series A Due Diligence

The Series A lead investor — often a mainland China-based venture capital fund with a Hong Kong office — will conduct a legal and financial due diligence that includes a review of board minutes, shareholders’ agreements, and employment contracts. The investor’s counsel will check whether the start-up has complied with the Employment Ordinance (Cap. 57) Section 43M regarding statutory holidays and the Minimum Wage Ordinance (Cap. 608) Section 8. But they will also assess the “cultural fit” between the founders and the fund’s portfolio. A start-up that has documented its values — and can show that those values have been consistently applied in hiring, firing, and financial decisions — reduces the perceived execution risk. The SFC’s Fund Manager Code of Conduct paragraph 4.1 requires fund managers to “conduct appropriate due diligence on investee companies.” A start-up with a governance dossier reduces the due diligence timeline from 12 weeks to 8 weeks, according to the Hong Kong Venture Capital and Private Equity Association’s 2024 Due Diligence Benchmarking Report.

Actionable Takeaways

1. Draft a two-page “Founders’ Agreement” that defines decision-making thresholds (HKD 10,000 for operational decisions, HKD 50,000 for joint decisions, HKD 500,000 for board-level decisions) and a deadlock resolution mechanism, then have it reviewed by a Hong Kong solicitor before the first investor term sheet is signed.

2. Commence a weekly 30-minute board meeting from the first week of incorporation, with a formal agenda, minutes that record the reasoning behind each decision, and action items with deadlines, to satisfy the SFC’s IC Guidelines paragraph 3.2.2 and the HKEX’s Listing Rules 3A.02 expectations.

3. Create a conflict-of-interest register that lists every potential conflict — including side projects, family-owned suppliers, and personal relationships with clients — and update it monthly, to comply with the Hong Kong Companies Ordinance (Cap. 622) Section 489 and the SFC’s Code of Conduct paragraph 8.1.

4. Codify the first hire’s “decision rights document” before posting the job advertisement, specifying spending limits (HKD 5,000 for engineers, HKD 10,000 for sales), escalation paths, and expected response times, to pre-empt the material weakness finding that the FRC’s 2024 Inspection Report identified in 34% of small-cap listed companies.

5. File the first board minutes and the conflict-of-interest register in a secure digital vault that is accessible to the sponsor’s due diligence team, because the SFC’s Annual Enforcement Report 2024-25 confirmed that 12 enforcement actions against sponsors in the past year involved “failure to identify governance gaps at the pre-incorporation stage.”