For the Startup Scene, Unexpected Help from Silicon Valley

The severe spread of COVID-19 across the U.S. this spring brought the return to Taiwan of high-level Taiwanese- and Chinese-American talent from Silicon Valley. They are now helping build a similar environment for innovation on the island.

The group of 40-something Taiwanese-American tech entrepreneurs and venture capitalists that refers to itself as the Taiwan Mafia should not be confused with an organized crime syndicate. The moniker originated in a 2017 profile of the group in Taiwan’s Chinese-language Business Weekly magazine, which stimulated local interest in the backgrounds and careers of the individuals involved.

Steeped in the highly ambitious, well-funded culture and history of Silicon Valley, each of the Mafia’s members has founded and exited multi-million- and billion-dollar startups.

Most of the group members were longtime friends back in the Bay Area and moved to Taiwan only very recently, mostly due to the outbreak and rapid spread of COVID-19 across the U.S. beginning in March. One of the exceptions – and one of the best-known members of the group – is Steve Chen, co-founder of the video-streaming platform YouTube, who in 2018 became the first recipient of Taiwan’s Employment Gold Card, a four-in-one residency and work permit introduced to attract more high-level foreign talent.

Jameson Hsu, an investor whose previous positions include co-founder of Mochi Media and head of Chinese tech giant Tencent’s WeChat USA operation, is one of the gang’s “COVID refugees.” He says that previously he would travel to Taiwan for brief visits to meet with the engineering teams for his companies, but that this is longest he’s stayed on the island since he was a child.

He doesn’t regret making the move, though, and not just because Taiwan has been one of the safest places in the world since the pandemic started. “This place is amazing. The people are nice, and doing things is so convenient,” Hsu says. “And it’s like we never left San Francisco. All of our friends have come here.”

Venture capitalist Seamon Chan arrived in Taiwan right before the pandemic began severely affecting the U.S. Photo: Seamon Chan

Taiwan was also the first place venture capitalist Seamon Chan considered when he was told in early March that he would immediately need to leave his executive education program at Harvard Business School. Chan’s partner at the New York-based VC firm they started, Palm Drive Capital, is Taiwanese-American and both had heard that Taiwan had been handling the coronavirus outbreak effectively since day one.

“Palm Drive has been working with Taiwan investors and startups for a while,” Chan says, noting that the firm had partnered with Cathay Financial to invest US$20 million in a U.S. AI healthcare startup called Clover Health. “We came here right before COVID-19 hit in the U.S. because we were previously donating a lot of masks to China and knew that it was going to get worse in the U.S.”

Not wanting to sit still for long, Chan and others in the Taiwan Mafia have hit the ground running, exploring ways to support and build up Taiwan’s nascent tech startup scene, as well as to use their accumulated knowledge and experience to cultivate local enterprises. After a few months of investing in startups and working with Taiwanese founders, they have come to see Taiwan as fertile ground to begin creating a startup ecosystem on par with Silicon Valley.

“There are very good businesses here – good conglomerates,” Chan says. “And there’s lots of ways to work with them to try to incubate or grow the next generations of startups here. I think this is a very good opportunity.”

Particularly attractive for the Taiwan Mafia was Taiwan’s store of highly skilled, highly educated talent. “After all of us had been here and explored investment opportunities and worked with startups and mentored people, we realized that Taiwan has a lot of really smart, capable people,” Jameson Hsu says, musing that “it’s almost like we stumbled on this goldmine and no one’s really mining it.”

Members of the Taiwan Mafia, a group of investors and tech entrepreneurs previously based in Silicon Valley, at their Taipei base of operations in the Taiwan Tech Arena. Photo: Taiwan Mafia

There are, of course, several reasons why Taiwan may have been overlooked in the past, not least of which is the geopolitical situation. China’s fraught relationship with the U.S. and its territorial claims on Taiwan continue to loom large in the minds of overseas investors.

Language plays a role as well. Companies with substantial operations in Taiwan praise the work ethic and loyalty of their local staff, but consistently say that the level of English needs improvement. The government is acutely aware of this issue; the Bilingual Nation program was conceived in 2018 by then premier – now vice president – William Lai.

The “refugees” from Silicon Valley applaud the efforts to make Taiwan more bilingual. But they note that beyond improving the overall English-language level and environment, fluency in technical jargon and industry terms in English is also critical for talent development and industrial innovation in Taiwan. Chin Chun-ming, a former technical program manager at Microsoft and the Taipei-based co-founder and director of engineering at the startup Blocktag, says that English-language skills for engineers is important not only for communication with U.S.-based headquarters and foreign colleagues, but also to stay abreast of the most cutting-edge technological developments.

Chin, who is from Singapore – one of the models that Taiwan seeks to emulate in its bilingualization efforts – notes that big U.S. tech companies such as Google and Facebook publish papers and blog posts in English discussing technological breakthroughs and new trends. “So, if you know your English well, then you know what’s happening right at the front lines,” says Chin. These publications are generally consumed, and their ideas applied, first by U.S. enterprises. They then move on to Europe, and the cycle continues until they land in Asia.”

“So, there’s this time lag, which has been persisting for decades,” Chin says. This poses a major challenge for Taiwan’s startup scene. “If you want to be a leader, you need to go directly to the source. You cannot wait until traditional mainstream news reports on some breakthrough to get started. By then, it’s too late,” he says.

 Chin’s proposed solution is for English to receive more emphasis in engineering education. At present, the primary language of instruction in engineering classes at Taiwan’s higher education institutions is Chinese, though textbooks may be in English. 

Paradigm shift

Another strong headwind to creating a more disruptive, innovative startup ecosystem in Taiwan is a culture that is traditionally risk averse. This obstacle hinders startups’ ability to create strong and lasting ties with overseas hubs like Silicon Valley and Israel, says David Chang, founder of online translation platform Wordcorp and co-initiator of the Taiwan non-profit Crossroads. A kind of cultural shyness is still prevalent here, says Chang, preventing companies from making the kind of connections that would allow them to expand their products and solutions to other markets.

“When we ask why there isn’t a Taiwan unicorn yet, it comes down to the reach and cultural aspects of the startups,” says Chang. “You might have success in the local community, but you need the on-the ground connections and people running a branch or who have insight into other markets.”

A lot of Taiwanese startups have the right spirit, Chang says, but they may be looking only at local problems because doing so is safer than taking the risk of reaching out to communities overseas who speak different languages and have different work cultures.

Despite the optimism among many Taiwan Mafia members about Taiwan and its potential, they recognize the cultural barriers as well – chiefly the desire to play it safe that gets baked into society from early education. An example that Hsu cites from the startup world relates to stock shares. Whereas in Silicon Valley, many employees at startups are happy to accept equity in lieu of high salaries in expectation that the share value will increase over time, that practice is rare in Taiwan. Taiwanese employees prefer the safer bet of a steady income in an established industry.

The low appetite for risk in enterprise-building is understandable, Hsu says, considering the legacy of high-tech hardware design and manufacturing on which Taiwan built its modern economy. “Hardware is very time- and capital-intensive,” Hsu notes. “There’s very little margin for mistakes, so you can’t take big risks. You have to be very precise with every step that you take.”

It is a pervasive mentality, even among those in industry and government who are more forward-thinking about Taiwan’s future. John (Jian-chen) Juan, a supply chain analyst for Microsoft U.S.’ cloud business who is originally from Taiwan, returned in March when the pandemic began spreading in Washington state where he was living. Despite the government’s good intentions to boost core industries and make Taiwan more attractive to foreign talent and investment, Juan says, the thinking of many of those in authority is still dominated by an OEM/ODM manufacturing perspective.

After attending a recent event featuring a speech by a Cabinet minister, Juan says he found that much of the presentation dealt with how Taiwan can be a supplier for companies creating innovative products elsewhere. Instead of continuing along that same road, Juan says, what Taiwan needs to do is create its own brands.

“If you want to build a brand, you need an environment that is less restrictive in terms of government regulations in areas like setting up firms and hiring international employees,” Juan says. “Taiwan’s government has to do less. They try to protect our locals and ensure our job security and ensure the big brands won’t just cherry-pick our leading talent and leave the others jobless. It’s understandable, but it won’t fix structural problems.”

Juan and others point to the examples of Singapore, South Korea, Switzerland, Ireland, and Israel – small countries like Taiwan, but which have achieved marked success in cultivating strong startups. As of the end of last year, Israel had produced 20 unicorns – more than France, Germany, and Australia combined. Even South Korea, a country with a similar history and cultural background as Taiwan’s, has had 11 unicorns emerge in the past two decades.

Palm Drive’s Chan, while enthusiastic about the Taiwanese startups he and his partner are currently working with, also understands the limitations posed by the more conservative model of doing business in Taiwan. He sees the assistance of Silicon Valley veterans as just what Taiwan needs to overcome its past shortcomings.

“The thing about Taiwan is there’s a lot of good talent here, but they’re good at building products and not as good at marketing and fundraising,” Chan says. “That’s why the arrival of these Silicon Valley people makes for a great combination because they have all this experience raising millions of dollars.”

Jameson Hsu shares the view that Taiwan needs a paradigm shift from contract manufacturing of hardware products toward pioneering innovative software solutions and recognizable brands. The Mafia is now working toward the goal of gradually bringing the Silicon Valley culture and attitude of “move fast and break things” to Taiwan. To do that, they’re moving on from just investing and mentoring to starting their own companies and recruiting high-potential local talent.

“That’s the whole point of the Taiwan Mafia: we want create something to uncover all of these talented people,” Hsu says. “If they do want to take those risks, if they do want to create things, but there just aren’t the opportunities available to them – whether within a company or entrepreneurially – let’s use the Taiwan Mafia to attract these people and begin fostering a new kind of risk-taking ambition.”

Closing the English-language Gap

Bilingual Nation is a national, comprehensive set of policy initiatives aimed at improving English ability and elevating national competitiveness, with the ultimate goal of making Taiwan fully bilingual by 2030. As part of its blueprint for this goal, the government has suggestaed such steps as establishing all-English television channels and radio programming, making all government procurement documents and websites bilingual, and encouraging local businesses to enhance their English proficiency, among several other steps. Education in English for K-12 students is one of the major components of the initiative as well.

The point of starting bilingual education so early, says Minister without Portfolio Audrey Tang, is to ensure that in 10 years, the “adult or young adult population is comfortable with English.” Because English has never been part of Taiwan’s history or culture, it “may take a little bit of time before we can include it as one of our national – or official – languages,” Tang says.