It’s difficult to find a stronger hardware nation, per capita, than Taiwan: the island state, officially the Republic of China, is home to just 23 million people. But it has produced a host of hardware giants including Foxconn, Acer, Asus and HTC.
Hardware and semiconductor prowess helped make Taiwan one of Asia’s first four ‘Tiger economies’ in the latter half of the 20th century, alongside Hong Kong, Singapore and South Korea. But while its three fellow tigers followed up with success in the dot com age, Taiwan–largely due to its hardware focus–missed the Internet bus altogether.
Now, with Southeast Asian neighbors hopping aboard to make the region one of tech’s brightest, Taiwan is trying to get its tiger roaring once more.
Taiwan is home to around 140,000 manufacturing SMEs, the majority of which are based in the country’s densely-populated capital, Taipei. Few, however, have transitioned into software. William Bao Bean, a partner at investor SOSV and managing director at Taipei-based mobile-only accelerator MOX, believes there are three reasons why.
The first, he says, is investment: “There are many well known Taiwanese internet entrepreneurs. The issue is that they founded a startup, left Taiwan and never came back. One of the most important things about having a startup ecosystem is that they come back and invest through angel investment dollars. That did not happen.”
Bao Bean’s second reason for Taiwanese startup stagnation is that hardware investors are “quite risk averse. In the early days of the internet, ten years ago, they did a couple of internet projects and ended up losing money. So they came to the conclusion that either their family lacks investment or the internet sucks.”
The 2016 Taiwan Startup Ecosystem survey singled out funding as the biggest problem facing Taiwanese entrepreneurs. Seed money isn’t impossible to find but few firms move past Series A rounds. The survey found that only 13.8% of respondents had received VC cash.
The global financial crisis put paid to a brief VC flourish in Taiwan. But today it is getting back on track. In 2014 just $130m was handed out to new businesses. In 2015 it has leapt up to $421m.
That is still not enough to sustain a regionally-competitive startup ecosystem. But it has encouraged other venture capitalists to enter the fray. Firms like TTVC, Mesh Ventures, 500 Startups, AppWorks, 360ip and ITIC–the latter four of which were part of an $80m state investment in 2015.
Other metrics point to a bright future. At 73.% Taiwan has the largest smartphone penetration of any nation on earth. According to Freedom House 88% of its citizens are connected to the Internet.
Bao Bean and his MOX colleagues are trying to “encourage people to come back” to inject life into Taiwan’s startup ecosystem. “I pay for plane tickets and hotels for anybody who wants to come back and mentor for a few days,” he says.
Mentorship is sorely lacking. So are exits. Recent deals, such as the acquisition of Israeli ad network MassiveImpact by GMobi, and major funding rounds for EZTABLE, 17 Media and and The New Lens are proving that Taiwanese startups can win admirers in and out of their home nation. E-commerce platform KKday is present in 174 cities and 53 countries, with rapid expansion plans in the pipe.
But exits remain aloof. And more inspiration is needed for local firms to go big.
“When it comes to internet startups–not just in Taiwan, but all across Southeast Asia–we’ve yet to witness a very resilient and cohesive mentorship network,” says Yvonne Wu of AppWorks, an accelerator that was founded in 2009. Harnessing the country’s existing hardware network, she adds, is key.
“Taiwan has attracted many of the world’s leading tech companies to maintain R&D hubs or vendor resource management operations in the country,” says Wu. “The proliferation of so many hardware companies also means that Taiwan is in a pivotal position to capitalize on the growing integration of hardware and software – namely when it comes to the Internet of Things, smart city initiatives, and universal connectivity.”
Getting broadband connectivity to all corners of Taiwan has been a major campaigning platform for Audrey Tang, a 36-year-old former child programming prodigy who recently became Taiwan’s digital minister. She claims that it is “unhealthy to emphasize any one industry.”
“Stop seeing Taiwan as a closed world or a closed ecosystem and try to see it as more of a stage and then establish the necessary links,” Tang adds, hinting at closer cooperation with the Chinese mainland. Taiwan’s government is pushing hard for high-tech ventures to become a backbone of the economy: it will invest $1.52bn in “special digital infrastructure funds” over the next four years, backing VR, AI and other cutting-edge sectors.
Taiwan Startup Stadium, founded in 2015, has become a key focal point for entrepreneurial zeal. It has graduated promising young firms like Akohub, Chocolabs, Milkr, SkyREC, Zeus and many more. HeadStart Taiwan is another leading government initiatives, aimed at bringing more startup credentials to Taiwan. Tang wants to open the domestic economy to “let (startups) fail without incurring costs. That’s how a startup works.”
Tang and Taiwan’s government needs more young people to see startups as a viable post-grad career option. Most of Taiwan’s entrepreneurs are aged between 31 and 35, with 60% married. Most will have moved from multinationals to form their own ventures. If Taiwan is to become an island of startups it needs young people to found companies fresh from college–standing ideas up on their own, rather than part of a corporate business plan.
Taiwan’s government has removed a ream of red tape it hopes will help shape a new generation of startup entrepreneurs. Tax rates and subsidies have been improved. An entrepreneurship and foreign talent visa is bringing more overseas tech pros to the island.
Crucially, bans on university professors having part-time industry roles have been lifted – opening the door for university tech spinouts; a key component of western tech ecosystems. “According to the amended policy, professors are allowed to second to the non-profit public, private or public-private enterprises,” says Lydia Huang of the National Taiwan University of Technology and Science, also known as Taiwan Tech. “It enables professors involving in research and development work of industry.”
Taiwan Tech is ranked 73rd in the world by the Times Higher Education Global University Employability survey. Zhuang Yong-shun, chairman of Aeon, graduated from Taiwan Tech in 1979. He has donated $10m to the university.
Huang advocates for nothing less than an “education revolution. This means changing the education system to create a more competitive and irresistible supply of talent a few years down the line – both in terms of technical skills such as software engineering and English proficiency, but also softer skills to help breed a more resilient and bolder generation of entrepreneurs to drive a sustainable pipeline of innovation in Taiwan.”
That will help local entrepreneurs bridge what Bao Bean describes as Taiwan’s third tech roadblock: its domestic market. “It’s a pretty basic one but Taiwan is a pretty small place, and the home market is nonexistent,” he says. “If you develop something for the home market, it’s not something you can take to other markets. All the countries around it in Asia, their first experiences with internet is on a phone. In Taiwan it’s a PC.”
That difference makes it tough for Taiwanese startups to go big in mainland China, adds Bao Bean. Another is politics. China still claims Taiwan, formerly a Dutch colony, then Japanese-backed dictatorship, as a breakaway province which will soon come back under its aegis. Taiwan’s leaders claim that to be false, pointing to a separate constitution, democratically-elected officials and a 300,000-strong armed forces.
Rhetoric between the two remains fiery. And for some, it is holding back vital tech cooperation between China and Taiwan. “Given the political situation, there is of course a degree of tension when it comes to Chinese investment,” says Wu. “But that hasn’t necessarily inhibited the economic landscape in Taiwan. In fact, there’s an oversupply of financing currently floating around our capital markets, particularly evident from the amount of dividends paid out this past quarter.”
Perhaps, with an injection of government and VC cash, and the startups they will inevitably bring, Chinese investors will come flooding to Taiwan–and not just for its hardware winners. When that moment comes, the island nation is doing a lot to ensure it has an tiger-level ecosystem poised to rediscover its stripes.