Formerly Lai Chinte When he is sworn in as Taiwan's president in May, his administration will be an unprecedented three-term administration by the Democratic Progressive Party. His victory underscored voters' desire to maintain the status quo even as Taiwan continues to grapple with the looming specter of China. Immediately after being elected in January, Mr. Lai stated that he wanted “world peace and stability.” It depends on peace in the Taiwan Strait. ”
As long as this peace lasts, Taiwan has room to focus on domestic issues such as industry that will improve its economic competitiveness. These include the still-overshadowed startup ecosystem. Taiwan's huge semiconductor industry.
Although the startup industry has grown over the past decade, it still grapples with issues such as lack of funding in later stages and regulations that make it difficult to raise funding from foreign investors.
However, Taiwanese entrepreneurs are concerned that Mr. Lai will ease regulations on financing, promote long-term support for sectors such as deep tech that take years to develop, and support new industries to create jobs. I hope that measures will be taken.
Horace Luke, founder and CEO of battery replacement and electric scooter company Gogoro, one of Taiwan's four unicorn companies, has had many conversations with Lai about the startup ecosystem. I'm optimistic.
“He's a progressive guy, so I'm really looking forward to seeing the new administration in place,” Luke said. “His background as a doctor makes him understand the value of improving people's lives. At the same time, as the island's new leader, he has an obligation to work to improve the island's economic life. .”
Funding environment
One of the promises made by Mr. Rai during his election campaign was investment. Invested 150 billion NTD (approximately 4.7 billion USD) in Taiwanese startup companies. Observers say the numbers are hollow without details. “It's not the amount that matters, but how that money is allocated,” said Edgar Chiu, venture partner at SparkLabs Taipei.
He added that the Taiwanese government should look to South Korea and Japan as proof of how much the startup ecosystem can grow with the right government support. In South Korea, multiple capital injections have been made, including: $2.8 billion will be allocated in 2024, with state-run Korea Venture Investment Corporation managing $6.1 billion. As of 2022, there will be 22 unicorn companies in South Korea, a significant increase from 3 in 2017.
Initiatives introduced by the Taiwanese government include a National Development Fund matching program, investment in more mature startups, early stage investors Taiwania, and travel to Taiwanese startups to places like Japan and Silicon Valley to attract potential investors. Examples include Startup Island, where you can meet people. And customers.
But for startups raising money from private equity investors, especially foreign investors, the process is often difficult. As a result, many startups register Cayman Islands or offshore companies. This is because the Investment Review Bureau under the Ministry of Economy often takes a long time to review foreign investments, and the process needs to be more transparent for startups, Chiu said.
“How can we make this procedure more efficient because it's like a black box at the moment? We don't know what's behind it and we don't know who to turn to.” he added. “Many of the startups we have invested in, the majority or about 70% of which are Taiwanese companies, face the challenge of having all their investors come from outside Taiwan in the next investment round.”
Getting approved for government funding can also be difficult. Su-Wei Chang, founder and CEO of TMYTEK, which develops 5G mmWave test solutions, said one hurdle was convincing the committee about the importance of incremental goals, especially in complex technologies. He said it was something to do.
“Usually we start writing all the documents and proposals and have to send them to them, but when committee members consider a project, they sometimes set very unreasonable goals. “I have things to do,” he said. “For example, they want 80% to be made in Taiwan. In the phased arrays we built, we used beamforming ICs that were primarily made in the United States or Europe.”
Another major challenge faced by Taiwanese startups is the lack of funding, especially when entering the growth stage beyond Series B. A recent report by PwC and Taiwan Economic Research Institute found that 44.3% of startups said they lacked funding or access to capital, making it the biggest challenge for first-time and returning founders. It becomes. Most of the investments actually made are in the early stages, with angel and seed rounds accounting for 77.3% of the total funding received.
This is similar to Japan's funding environment, where many startups struggle to raise Series B or Series C funding and often choose to list on the Tokyo Stock Exchange's Growth Section instead.
A similar exit option is the Taiwan Stock Exchange's Taiwan Innovation Board (TIB). The committee was launched in 2021 and was established to allow more startups from various sectors to go public. Minimum market capitalization is low, and companies do not need to make profits before going public. For biotech startups, revenue is not one of the criteria for board membership. Although it may be too risky for most retail investors, TIBs may spark investor interest as they provide startups with increased liquidity and new exit options. An example of a Taiwanese startup that has decided to list on TIB is as follows. Gogolook is an anti-fraud software provider with presence across East and Southeast Asia.
CC Chang, co-founder of instant booking app FunNow While TIB is an option, the government needs to introduce a program to support startups from Series A through potential exit, he said.
“We have a lot of government programs for early stage startups, but we lack programs for later stages,” he said. “Without role models in the ecosystem, there will be a lack of new talent, graduate students and international talent to join new startups.”
Towards globalization
Another challenge faced by startups is that many government policies designed to help companies expand overseas are focused on the manufacturing and semiconductor industries. This is perhaps not surprising given that these industries are central to Taiwan's economy.
With a population of just 24 million people, many Taiwanese startups aim to expand internationally soon after launching.
Given Taiwan's size, it is unlikely that a unicorn company will emerge that serves only the domestic market, Chiu said. Therefore, to create more unicorns, startups need more funding in the seed stage and start thinking globally in the subsequent growth stages.
FunNow expanded in part because it wanted to take advantage of first-mover advantages in countries without similar apps, Chan said. The company is currently focused on growth in Southeast Asia, with offices in the Philippines, Thailand, Singapore, and Malaysia.
Southeast Asia has been a target for many other startups, and in 2016 the Tsai administration implemented the “New Southward Policy” aimed at making it easier for Taiwanese companies to expand into South Asia, Southeast Asia, Australia and New Zealand. .
However, startups still face many obstacles, Chan said. He added that while the New Southbound Policy was a step in the right direction, startups looking to new markets need more support from the government. The obstacles they face include different tax regulations and requirements for foreign companies in each new market.
Mr. Chan would like to see more tax incentives for high-tech startups, noting that there are already significant tax breaks for technology startups. biotechnology and semiconductor industry.
Another thing the Taiwanese government can do is clarify legal and tax issues, including remittances. For example, FunNow wants to buy Meta and Facebook ads to serve in Malaysia, but needs to know whether they will have to pay taxes on their purchases in Taiwan, the US, or Malaysia. had.
Spark Lab's Chiu is optimistic that Lai will enact policies that support the globalization of Taiwan's technology industry. “The Taiwanese market is very small, so I think Mr. Lai will take more active steps to support startups that want to expand globally, and I think global expansion is necessary for us,” he said. .
Job creation and long-term growth
One of Mr. Rai's campaign promises was to create 20,000 jobs in startups. During one meeting, Gogoro's Luke told Rai about how to create thousands of jobs, saying, “One of the things we came up with was energy, not just electrification.” How do we take big fields such as energy, mobility, and EVs, find out what Taiwan is good at, make good use of it in Taiwan, and stabilize it in Taiwan to achieve mass adoption? ”
Luke points to GoGoro's supply chain, which is built in Taiwan and employs thousands of people, as an example of how startups can create new jobs. He added that other electric vehicle manufacturers could do the same if they upgraded their technology.
“Thousands of jobs could trigger a flywheel in the industry,” Luke said. He pointed out that Lai was one of the first politicians to support Taiwan's EV industry by introducing a moratorium on internal combustion engine vehicles while he was prime minister. Mr. Lai continued his efforts after becoming vice president in 2020.
“Sustainability technology was one of the things he really wanted to champion,” Luke said. “We had a good discussion on the subject for 30 to 45 minutes. He definitely felt more progressive.”
SparkLabs' Chiu believes quality is more important than quantity when it comes to job creation.
“20,000 jobs is a promising sign, but I don't think the number of jobs matters. As more work is done by AI and other automation, the quality of the work is the big key. I think that's promising, but how you translate that into your strategy is even more important.”
Chiu said both South Korea and Japan support a focus on long-term growth for startups, especially those in sectors that take years to reach commercialization.
“For startups, especially early stage and deep tech startups, it takes time to cultivate these new innovations,” he said.
TMYTEK's Chan said that over the past five or six years, the Taiwanese government has focused on several areas to gain an advantage over other markets and create an industry as big as the semiconductor industry. Stated.
Chan believes it would be better to focus on one or two areas rather than splitting the funds promised by Lai into multiple areas.he It points out that the Japanese government is focusing on satellite communication systems.
“If we don't focus our resources in one direction, progress will be slow,” he said.
Luke also believes that the best bet for Taiwan's startup ecosystem is to work on technologies where the island already excels and has a strong competitive moat that can beat countries with larger economies of scale. ing. These include Gogoro's combination of software and hardware, like his SmartScooters. But it requires long-term support.
“Taiwan needs to find its own groove and really find an industry that it can rely on not just for a few years, but for decades to come. Let the industry bloom, create the routes, create the flywheel, and make long-term investments. ”