'Taiwan needs to find its own groove': What startups want from the next president

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Once upon a time Lai Ching-te After being inaugurated as Taiwan's president in May, his administration will mark an unprecedented three terms of rule for the Democratic Progressive Party. His victory underlined voters' desire to maintain the status quo even as Taiwan deals with the growing threat of China. “Global peace and stability,” Lai said shortly after being elected in January. “Taiwan depends on peace across the Straits.”

As long as peace continues, Taiwan has room to focus on domestic issues such as industries that can make it more economically competitive. These include its startup ecosystem, which is still under eclipse Taiwan's huge semiconductor industry.

The startup industry has grown over the past decade, but it still struggles with issues such as lack of capital and regulations in the later stages, making it difficult to obtain funding from foreign investors.

But Taiwanese entrepreneurs hope Lai will take steps that include loosening rules around funding, boosting long-term support for sectors like deep-tech, which take years to develop, and creating more jobs. Including supporting new industries.

Horace Luke, founder and CEO of battery swapping and electric scooter company Gogoro, one of Taiwan's four unicorns, has discussed the startup ecosystem several times with Lai and is optimistic.

“I'm very excited to see this new administration come in because he's progressive,” Luke said. “Because of his background as a doctor, he sees the value in improving people's lives. “At the same time, he has a duty to be the new leader of the island and lead initiatives that improve the financial livelihood of the island.”

funding environment

One of the promises Lai made during his campaign was investment $150 billion NTD (about $4.7 billion USD) in Taiwanese startups. Observers say the numbers ring hollow without further details. “It's not about the amounts, but about how those amounts are distributed,” said Edgar Chiu, SparkLabs Taipei venture partner.

He said 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, funding has been done several times $2.8 billion is earmarked for 2024 and $6.1 billion is managed by state-owned Korea Venture Investment Corp. By 2022, there were 22 South Korean unicorns, which is a huge jump from three in 2017.

Some initiatives launched by the Taiwanese government include the matching program of the National Development Fund and Investments in More Mature Startups, early-stage investors in Taiwania, and Startup Island, which brings Taiwanese startups to places like Japan and Silicon Valley to meet potential investors. Takes on trips. And customer.

But for startups raising capital from private equity investors, especially international investors, the process is often challenging. As a result, many startups register a Cayman or offshore company. This is because the Investment Review Department under the Ministry of Economic Affairs often takes a long time to review foreign investments and the process needs to be made more transparent for startups, Chiu said.

“How can this process be more efficient, because right now it is like a black box. You don't know what's behind it, you don't know who to turn to for advice,'' he said. “A lot of the startups that we have invested in, the majority or about 70% of them are Taiwanese companies and the challenge they all face is that when they raise the next round of investment, all those investors are going to be coming from outside Taiwan. Are.”

Getting government funding approved can also be challenging. Su-Wei Chang, founder and CEO of TMYTech, which makes 5G mWave testing solutions, said one hurdle is convincing the committee of the importance of incremental goals, especially for complex technology.

“Normally we have to start writing all the paperwork, proposals and send them, but when the committee members review the project, they sometimes set some unreasonable targets,” he said. “For example, they want 80% made in Taiwan. In the phasor array we made, we used beamforming ICs which are mainly from America or Europe.

Another major challenge facing Taiwanese startups is the lack of funding as they reach the development stages, especially Series B and above. A recent report from PwC and Taiwan Institute of Economic Research found that 44.3% of startups said they lack access to funding and capital, making this the biggest challenge for first-time and return-to-founders. Most of the investments that take place are in the early stage, 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 capital and often opt to list on the Tokyo Stock Exchange Growth section instead.

A similar exit option is the Taiwan Stock Exchange's Taiwan Innovation Board (TIB), which launched in 2021 and was created to enable more startups from different sectors to go public. It has a low minimum market capitalization and does not require companies to be profitable before listing. For biotech startups, revenue is not one of the criteria for inclusion on the board. While this may be too risky for most retail investors, TIBs give startups more liquidity and another exit option, which may increase investor interest. An example of a Taiwanese startup that has decided to go public on TIB Gogolook, an anti-fraud software provider, has expanded throughout East Asia and Southeast Asia.

CC Chang, co-founder of instant booking app FunNow That said, even if TIBs are an option, the government still needs to launch programs to support startups between Series A and their potential exit.

“We have a lot of government programs for early-stage startups, but there is a lack of programs for later-stage startups,” he said. “If we don’t have role models for the ecosystem, it will lack new talent, graduate students and foreign talent to join new startups.”

going global

Another challenge facing startups is that many government policies designed to help businesses move abroad focus on the manufacturing and semiconductor industries – which is perhaps not too surprising, given that these are the backbone of Taiwan's economy. How important are they for.

Many Taiwanese startups eye international expansion as soon as they launch because it has a population of just 24 million people.

Chiu said Taiwan's size makes it less likely to produce a unicorn that only serves the domestic market. So to create more unicorns, startups need more seed-stage funding and then during their growth phase, they have to start thinking global.

Chang said one reason for FunNow's expansion was that it wanted to take advantage of first-mover advantage in countries without similar apps. It is currently focused on growing in Southeast Asia and is present in the Philippines, Thailand, Singapore and Malaysia.

Southeast Asia is a target for many other startups and in 2016, the Tsai administration implemented the new Southbound Policy to make it easier for Taiwanese businesses to expand into South Asia, Southeast Asia, Australia and New Zealand.

But startups still face many hurdles, Chang said. He says the new Southbound policy is a step in the right direction, but startups looking for new markets need more help from the government. The obstacles they face include different tax rules and requirements for foreign businesses in each new market.

Chang wants to see more tax incentives for tech startups, noting that there are already ample tax breaks in place biotech and Semiconductor Industry.

Another thing the Taiwanese government can do is provide clarity about legal and tax issues, including money transfers. For example, FunNow wanted to buy Meta and Facebook ads for distribution in Malaysia, but had to find out whether they would have to pay taxes on the purchases in Taiwan, the United States, or Malaysia.

SparkLabs' Chiu is optimistic that Lai will implement policies to support the globalization of Taiwan's tech industry. “I think Lai Ching-tey is going to take more aggressive action in supporting startups that want to expand globally because Taiwan's market is very small and I think it's important for us to expand globally,” he said. “

Creating jobs and long term development

One of Lai's campaign promises was to create 20,000 startup jobs. During a meeting, Gogoro's Luke said he talked to Lai about how to create thousands of jobs and “one of the things we arrived at was not just electrification, but energy. How do you take big sectors like energy, mobility, EV, and figure out what Taiwan is good at, get it good in Taiwan and then stabilize it in Taiwan to achieve mass adoption.

Luke uses Gogoro's supply chain, which it built in Taiwan and employs thousands of people, as an example of how startups can create new jobs. He said other electric vehicle makers could do the same thing as they advance their technology.

“Thousands of jobs could spur an industry boom,” Luke said. He said Lai was one of the first politicians to support Taiwan's EV industry after banning internal combustion vehicles when he served as prime minister. Lai continued to work on it 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 this topic for half an hour, 45 minutes. I thought he was definitely more progressive.”

SparkLabs' Chiu believes that quality over quantity is important when it comes to job creation.

“Twenty thousand jobs is a promising sign, but I think the job number is not important. Quality of work is the major key, as more work will be done by AI or other forms of automation. I think this is promising, but how you interpret it into strategy is even more important.

Chiu said both South Korea and Japan have supported a focus on long-term growth for startups in the country, especially in sectors where it may take years to reach commercialization.

“For startups, especially early stage and deep tech startups, it takes time to develop these new innovations,” he said.

TMYTEK's Chang said that over the past five or six years, the Taiwan government has focused on a number of areas to gain an advantage over other markets and build something as big as its semiconductor industry.

Instead of dividing the money pledged by Lai among several areas, Chang feels it is better to focus on one or two. He This points to the Japanese government's focus on satellite communications systems.

“If you don't concentrate resources in one direction, progress will be slow,” he said.

Luke also believes that the Taiwan startup ecosystem's best bet is to build on technology the island already excels in and has a strong competitive moat so it can beat countries with economies of scale. These include things that combine software and hardware, like Gogoro's smartscooters. But it needs long-term support.

“Taiwan needs to find its own groove and really find industries it can rely on for the next several decades, not just a few years, but long-term policies that allow an industry to thrive, Allows to create routes, flywheels and create. Investments that are long term.”