Broadening the Startup Base

Taipei-based startup accelerator AppWorks boasts a network of 376 startups and over 1,000 founders covering what it calls the Greater Southeast Asia (GSEA) region. Photo: AppWorks

Taiwan has built a solid startup ecosystem over the past decade. Now it needs to strengthen its international connections.

Recognizing the vital role of startup enterprises in fostering an innovative economy, Taiwan in recent years has put in place many of the pieces necessary to build a dynamic startup ecosystem.

The privately invested accelerator AppWorks, for example, now in its tenth year, has become a bedrock of Taiwan’s startup ecosystem. Noting its network of 376 startups and over 1,000 founders, the largest of its kind in Asia, AppWorks describes itself as a “turbo engine built for seed-stage startups.” turbo engine built for seed-stage startups and your connection to  in Asia.

The government has also been paying increasing attention to the sector. With support from the National Development Council, the Taiwan Startup Stadium was established in 2015 to help cultivate local entrepreneurs and showcase their achievements. TSS has already served over 200 startups, bringing them together with more than 500 investors and over 130 mentors.

Government involvement in promoting startups increased in 2017 with the founding of Taiwania Capital, Taiwan’s first state-backed venture-capital firm. Its Fund 1 closed with US$150 million, focusing on investments in cloud-computing infrastructure, the Internet of Things (IoT), advanced semiconductors, robotics and drones, artificial intelligence, and information security. Fund 2 is even bigger at US$200 million and focuses on medical technology, pharmaceutical research and development, and therapy for genes and cells.

But there is also growing awareness that Taiwan’s startup scene needs to become more internationalized to be fully successful. That means both helping Taiwanese startups to succeed in global markets and creating a favorable environment that attracts more would-be entrepreneurs from other countries to found their businesses in Taiwan.

The need for most startups to look beyond Taiwan’s borders is evident. The Taiwanese domestic market is small, at just 23 million people, making it hard to scale up a business domestically. If a startup is not globally oriented from the onset, its future prospects are limited.

Lack of familiarity with other countries’ business cultures can be overcome by including sufficient international talent on the Taiwan-based startup teams. It has also long been recognized that having a diversity of talent represented on a team – in terms of nationality, gender, social background, and other factors – can provide a big boost to innovation and creativity.  

In its section of AmCham Taipei’s 2020 Taiwan White Paper, the Talent Circulation Alliance stressed the importance of removing restrictions and offering incentives so as to encourage the free circulation of startup talent. Some of the recommendations included:

  • Provide national treatment to foreign startup talent willing to base some or all of their activities in Taiwan.
  • Extend the existing Gold Card program to foreign startup talent and devise such other incentives as tax reductions (perhaps based on the number of jobs created) and the use of “sandboxes” to create a more flexible regulatory environment.
  • Host a Tier One global conference to call attention to Taiwan’s attributes as a location for startups.  
  • Pursue close collaboration with overseas innovation hubs, helping to connect Taiwanese innovators with their foreign counterparts.

“Taiwan has never lacked founders,” says Joseph Chan, a partner at AppWorks, referring to the owners of the island’s many small and medium businesses. “The difference is that now more people recognize the value of the digital economy.” Whereas the enterprises of the past tended to concentrate on “hardware” manufacturing, the current focus is geared toward software to develop mobile apps, as well as products and services based on IoT, artificial intelligence, and 5G telecommunications.  

The Talent Circulation Alliance recommends that Taiwan offer incentives and remove restrictions on the free flow of startup talent between Taiwan and other like-minded countries. Photo: AppWorks

With the basic building blocks now in place, Taiwan sees an opportunity to become a startup hub in Asia – developing close working relations with Southeast Asian markets in particular – if some challenging obstacles can be overcome. One is that Taiwan’s business environment has yet to fully embrace startup culture. Capital is abundant but not always forthcoming to those seeking it, especially at the seed stage. Local investors generally prefer something they are familiar with to anything new and different. Regulations, meanwhile, are designed for incumbent industries and often impede the ability of entrepreneurs to get new businesses up and running.

“Taiwan’s institutional investors, until the last five years, have not placed much emphasis and premium on investing in startups,” says Daniel Tu, founder and managing director of Hong Kong-based Active Creation Capital. “Today, there are just a handful of Taiwan IT and financial institutions that have a corporate venture arm. Their focus is mostly strategic and less ‘venturesome.’”

Creating International Connections

A decade ago, very few foreign entrepreneurs would choose Taiwan as a place to set up a new tech company. Today, as the Taiwanese startup scene has grown more mature, the number is growing steadily. Still, much more needs to be done to get the word out about Taiwan’s advantages as a startup center: the capable but relatively inexpensive engineers, prowess in high-tech manufacturing, strong government support, stable economy, and excellent quality of life. 

American Jon Jones is the co-founder of blockchain venture studio firm UnityChain and social network Overlay. He has been in Taiwan for about a decade and led the Taiwan Entrepreneurs Club, a networking group for startups, from 2014 to 2018. He says he founded the group because of what he saw as a dearth of resources for startups in Taiwan at the time.

Since then, he notes, the government set up the accelerator Taiwan Startup Stadium, while new privately funded accelerators including Mox, Techstars, and Sparklabs have been established here. These accelerators provide a crucial link to the global startup scene. “They have thousands of mentors that can connect startups in Taiwan to global VCs, which can help solve funding bottlenecks,” he says. “Startups in Taiwan have struggled in the past to get VC investment, and when they do, the valuations are lower than elsewhere in Asia.”

A 2019 survey by PricewaterhouseCoopers found that local startups remain focused on the domestic market. Although 80% of survey respondents said internationalization was one of their key development goals over the next three years, 60% had yet to hire any international talent. Just 30% had begun planning on how to tackle the foreign markets they hope to enter.

With that in mind, Jones encourages the government to provide more attention and funding to programs with potential global outreach. The level of government support these accelerators receive could depend on the amount of funding their startups receive from global VCs, he suggests.

Ryan Terribilini, a California native and founder of the Taipei-based digital treasury asset management firm Formosa Financial, came to Taiwan in 2018 with high hopes after being approved for an Entrepreneur Visa and later an Employment Gold Card. The Gold Card serves as an open work permit for three years and provides holders with a 50% tax reduction on the portion of their salary above US$100,000. The eight occupational categories the Gold Card covers include science and technology, the economy, culture and the arts, education, sports, finance, law, and architectural design. As a fintech entrepreneur, Terribilini was eligible.

Terribilini is candid about the challenges he has faced in Taiwan. “My experience has been that the regulatory environment is resistant to change, to the extent that it can hurt new business ventures,” he says. He points to the numerous bureaucratic hurdles involved in setting up a company in Taiwan – a process that can take up to three months, compared to one business day or less in Singapore.

He is adamant about the importance of streamlining bureaucracy. “If you want to be a startup hub, you need to make it a snap for new companies to get up and running. Otherwise, Taiwan won’t be a launchpad for the rest of Asia. It will just be where you open a branch office if you’re expanding into Chinese-speaking markets.” 

Singapore is well known for its ability to attract foreign entrepreneurial talent. Veterans of Taiwan’s startup scene urge the government to learn from the city-state’s pro-global talent policies. They suggest that Taiwan go further than the Gold Card’s provisions, and offer additional tax reductions as well as support for the schooling of expatriate professionals’ children.  

AppWorks, which regards Taiwan as part of the “Greater Southeast Asia (GSEA) region, has been focusing on helping local startups expand to Hong Kong and the ASEAN countries. In recent years, the accelerator has seen a marked increase in the number of foreign founders, partner Joseph Chan says. Since 2018, on average about half of its founders come from overseas. In AppWorks’ current batch of startups, 26 of 44 founders are from outside of Taiwan. The accelerator now has a large alumni community in Hong Kong, Chan says.

Taiwan-based startups that have graduated from AppWorks and expanded globally include travel-activity booking platform KKday and restaurant point-of-sale device maker iChef. Two Singapore-based ventures – Carousell, a business-to-consumer e-commerce platform, and Shopback, a cash-back reward program – have participated in AppWorks as part of their international expansion.

The deepening connections between Taiwan and Silicon Valley are also important for Taiwan’s startups. While Taiwan has talked about building an “Asia Silicon Valley” here, replicating by design what was a rather unique U.S. phenomenon could prove elusive. Instead, the government has emphasized the development of solid links between Taiwan’s startup community and the dynamic innovation ecosystem in Silicon Valley.

Meanwhile, the American Institute in Taiwan (AIT) has been working with the Taiwanese government on a series of initiatives supporting the local startup ecosystem. These include the U.S.-Taiwan Small and Medium-sized Enterprise Work Plan, the Global Entrepreneurship Congress – which focuses on using AI and IoT for social good – and the first Women’s Economic Empowerment Summit.

A Stronger Startup Ecosystem

To build a more robust startup ecosystem, industry observers say, the authorities should foster closer cooperation among the private sector, government agencies, and research institutes. While some of the business models and technologies that would be involved are relatively new, such strategic tripartite industrial policy is not. Taiwan built one of the world’s foremost semiconductor industries in this manner.

Tu of Active Capital Management suggests that the government provide a “playground” for talented entrepreneurs to work on the technologies, products, and solutions that can solve large global problems. 

“Vision, exposure, and funding are inseparable,” he says. “Israel is a case in point where the government has a technology office and all the top universities have a technology IP licensing/transfer arm. Hence, you create a virtuous cycle where monetization supports further research and development, and cultivates talents.”

In a January report, The Carnegie Endowment for International Peace highlighted Israel’s success building a startup ecosystem, integrating resources from government, the private sector, and academia. For instance, Israel has trained some units of its intelligence service to develop skills useful in private-sector ventures. One of the best-known examples is in the town of Be’er Sheva, where Israeli companies and venture capitalists jointly set up R&D units. Ben Gurion University supported the initiative with research work. Participants in this program have been able to go on to careers in successful tech startups in Israel, especially in cybersecurity.

At the same time, Taiwan must improve its overall English proficiency to position itself as a startup hub. Coupled with their status as financial centers and pro-business regulatory environments, the former British colonies of Singapore and Hong Kong enjoy an edge in attracting startups and global VC investment because of the prevalence of English, despite their high costs of rent and labor.

In 2018, the Tsai Ing-wen administration announced that it planned to make Taiwan a bilingual country by 2030, with English as the second official language. If successful, this initiative would significantly strengthen Taiwan’s economic competitiveness. Startups would be one of the largest beneficiaries of a bilingual Taiwan, as the nation would become better connected to global VCs and entrepreneurs.

One of the suggestions that came out of a roundtable event on Taiwan’s startup ecosystem held by the TCA in March was that the government support the creation of some angel investment funds for early-stage startups, aimed at helping them transition from the seed stage to the A-round. Prior to the transition, the fund would help the startup build a team and develop its business model, product, and international expansion plan.

Such a policy could be highly beneficial to Taiwan’s startups, which need VCs with international experience to support them at the seed stage. However, the government might need to provide certain tax incentives or subsidies to offset the relatively high management fees for such funds.

The newest challenge to Taiwan’s startup community is the coronavirus pandemic, which threatens to plunge the global economy into prolonged recession. Startups in Taiwan could be adversely affected since many have limited cash flow and operate at a loss at least for the first few years.

There are encouraging signs, however, that the Taiwan government is aware of the predicament that many startups now find themselves in – and is acting to provide some relief. In April, the NDC began accepting applications from startups heavily hit by the COVID-19 pandemic for inclusion in a special investment scheme. Participants in the program will receive six to 12 months of funding from the NDC, providing preferred stock shares in return. Startups can be in any industry but cannot be considered traditional businesses.

To be accepted, applicants must explain to the NDC what qualifies them as a startup, how the pandemic has affected them, and how they will use the funds if they receive them. They must also provide key information about their stock. 

Looking ahead, one factor that may work to Taiwan’s advantage as a startup hub is the perception that it is safe and stable. This perception could be reinforced by its success in keeping the coronavirus pandemic under control. Compared to elsewhere in the region, and indeed the world, Taiwan has relatively few cases and fatalities. Of equal importance is the lack of community transmission. The majority of Taiwan’s infected have contracted the disease overseas.

Provided Taiwan can continue to keep the coronavirus at bay, it will enjoy an enhanced global reputation. One way to use this increased soft power to benefit the startup community would be a greater focus on digital healthcare. Taiwan has had a foothold in this industry for years, but it has never had an opportunity quite like the present one to marry its medical technology strengths with expertise in epidemiology.

These attributes could make Taiwan attractive as an Asian health-tech startup hub in the post-coronavirus world. Other markets may have more readily available funding or streamlined regulations, but only Taiwan has both industry-leading medical technology and one of the world’s best epidemic control and prevention systems.