Once Lai Ching-te is inaugurated as Taiwan’s president in May, his administration will mark an unprecedented three terms of Democratic Progressive Party rule. His victory underscored the desire of voters to maintain the status quo, even as Taiwan continues to deal with the looming specter of China. Soon after he was elected in January, Lai said, “Global peace and stability depends on peace in the Taiwan Strait.”
As long as that peace holds, Taiwan has room to focus on domestic issues, like industries that can make it more economically competitive. These include its startup ecosystem, which is still overshadowed by Taiwan’s massive semiconductor industry.
The startup industry has grown over the past decade, but it still deals with issues like a lack of capital in later stages and regulations that make it difficult to get funding from foreign investors.
But Taiwan’s entrepreneurs are hopeful that Lai will take actions that include loosening regulations around funding, fostering long-term support for sectors like deep-tech that take years to develop, and supporting new industries to create more jobs.
Horace Luke, founder and CEO of battery swapping and electric scooter company Gogoro, one of Taiwan’s four unicorns, has had multiple discussions with Lai about the startup ecosystem and is optimistic.
“I’m very excited about seeing this new administration come in because he’s progressive,” Luke said. “Because of his background as a doctor, he sees the value of improving people’s lives. At the same time, he has the duty of being the new leader of the island and having initiatives that improve the financial livelihood of the island.”
Funding environment
One of the promises Lai made during his campaign was investing $150 billion NTD (about $4.7 billion USD) into Taiwan’s startups. That number is hollow without more detail, say observers. “It’s not about the amount, but how those amounts are distributed,” said SparkLabs Taipei venture partner Edgar Chiu.
He added that Taiwan’s government should see South Korea and Japan as evidence of how much a startup ecosystem can grow with the right government support. In South Korea, there have been multiple infusions of funding, like $2.8 billion earmarked for 2024 and $6.1 billion managed by the state-owned Korea Venture Investment Corp. As of 2022, there were 22 South Korean unicorns, a massive jump from three in 2017.
Some initiatives the Taiwanese government has put into place include the National Development Fund’s matching program and investments in more mature startups, early-stage investor Taiwania, and Startup Island, which takes Taiwan startups on trips to places like Japan and Silicon Valley to meet potential investors and customers.
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 Department of Investment Review under the Ministry of Economic Affairs often takes a long time to review foreign investments and the process needs to be more transparent for startups, said Chiu.
“How can this procedure be more efficient, because right now it’s like a black box. You don’t know what’s behind it, you don’t know who to consult with,” he added. “A lot of startups that we invested in, the majority or about 70% are Taiwanese companies and they all face the challenge that when they raise the next round of investment, all those investors are coming from outside Taiwan.”
Getting government funding approved can also be challenging. Su-Wei Chang, the founder and CEO of TMYTEK, which makes 5G mWave testing solutions, said one hurdle is convincing the committee about the importance of incremental goals, especially for complex technology.
“Normally we have to start writing all the paperwork, the proposals, and send it to them, but when the committee members review the project, they sometimes set some really unreasonable goals,” he said. “For example, they want 80% made in Taiwan. The phased array we built, we used beamforming ICs that are mainly from the U.S. or Europe.”
Another major challenge facing Taiwan’s startups is lack of funding as they hit growth stages, especially Series B and above. A recent report by PwC and the Taiwan Institute of Economic Research found that 44.3% of startups said they lacked access to funds and capital, making it the biggest challenge for first-time and returning founders. Most investments that do happen are in the earliest stages, with angel and seed rounds making up 77.3% of total funding received.
This is similar to Japan’s funding environment, where many startups struggle to raise capital at Series B or Series C and often opt to list on the Tokyo Stock Exchange Growth Section instead.
A similar option for exiting is the Taiwan Innovation Board (TIB) of the Taiwan Stock Exchange, launched in 2021 and created to enable more startups from different sectors to go public. It has a lower minimum market cap and companies don’t have to be profitable before they list. For biotech startups, revenue isn’t one of the criteria for inclusion on the board. While it might be too risky for most retail investors, TIB gives startups more liquidity and another option to exit, which might spark investor interest. One example of a Taiwanese startup that decided to go public on TIB is Gogolook, an anti-fraud software provider that has expanded throughout East Asia and Southeast Asia.
C.C. Chang, the co-founder of instant booking app FunNow said that even though TIB is an option, the government still needs to put into place programs to support startups between Series A and their potential exits.
“We have a lot of government programs for early-stage startups, but lack programs for later stages,” he said. “If we don’t have role models for the ecosystem, then it will lack new talent, graduate students, and foreign talent to join new startups.”
Going global
Another challenge startups face is that many government policies designed to help businesses go abroad are focused on the manufacturing and semiconductor industries – which is perhaps also unsurprising, given how central these are to Taiwan’s economy.
Many of Taiwan’s startups eye international expansion as soon as they launch because it has a population of just 24 million people.
Taiwan’s size makes it unlikely to produce a unicorn that only serves the domestic market, Chiu said. So to produce more unicorns, startups need more seed-stage funding and then during their growth stage, they need to start thinking global.
One of the reasons FunNow expanded was because it wanted to take advantage of the first-mover advantage in countries without similar apps, Chang said. It’s 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 in a bid to make it easier for Taiwanese businesses to expand into South Asia, Southeast Asia, Australia, and New Zealand.
But startups still face a lot of obstacles, said Chang. He adds the New Southbound Policy was a step in the right direction, but startups looking at new markets need more help from the government. Obstacles they face include different tax regulations and requirements for foreign businesses in each new market.
Chang wants to see more tax incentives for tech startups, noting that there are substantial tax breaks in existence already for the biotech and semiconductor industries.
Another thing Taiwan’s government can do is offer clarity about legal and tax issues, including around money transfers. For example, FunNow wanted to buy Meta and Facebook advertisements for distribution in Malaysia, but had to figure out if they had to pay taxes on the purchase in Taiwan, the United States, or Malaysia.
SparkLabs’ Chiu is optimistic that Lai will enact policies to support the globalization of Taiwan’s tech industry. “I think Lai Ching-te is going to take more aggressive action supporting startups that want global expansion since the Taiwan market is very small and I think it’s necessary for us to do global expansion,” he said.
Creating jobs and long-term growth
One of Lai’s campaign promises was to create 20,000 startup jobs. During one meeting, Gogoro’s Luke said he talked to Lai about how to create thousands of jobs and “one of the things we landed on was not just electrification, but energy. How do you take big sectors like energy, mobility, EV, and find out what Taiwan is good at, get it good in Taiwan and then stabilize it in Taiwan so there is 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 added that other electric vehicle makers can also do the same thing as they upgrade their technology.
“Thousands of jobs can trigger an industry flywheel to happen,” Luke said. He noted that Lai was one of the first politicians to support Taiwan’s EV industry when he developed a moratorium on internal combustion vehicles while serving as premier. Lai continued working on it after becoming vice president in 2020.
“Sustainability tech was one of the things he really wanted to champion,” Luke said. “We had a half hour, 45 minute, good discussion around the topic. I felt that he’s definitely more progressive.”
SparkLabs’ Chiu believes that quality over quantity is important when it comes to job creation.
“Twenty thousand jobs is a promising signal, but I think the job number is not key. The quality of the job is the major key, because more work will be done by AI or other kinds of automation. I think it’s promising, but how you interpret that into strategy is even more important.”
Chiu said that both South Korea and Japan have supported a focus in the country on long-term growth for startups, especially those in areas that can 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 Chang said that over the past five or six years, the Taiwanese government has focused on several sectors in a bid to gain an advantage over other markets and create something as large as its semiconductor industry.
Instead of splitting up the money Lai pledged between multiple sectors, Chang thinks it’s better to focus on one or two. He points to the Japanese government’s focus on its satellite communication system.
“If you don’t focus resources into one direction, then progress will be slow,” he said.
Luke also believes that the Taiwan startup ecosystem’s best bet is to work on tech the island already excels at and that has a strong competitive moat so it can beat countries with larger economies of scale. These include things that combine software and hardware, like Gogoro’s SmartScooters. But that needs long-term support.
“Taiwan needs to find its own groove and really find the industries it can rely on for the next several decades, not just a couple years, but long-term policies that allow an industry to blossom, to create routes, create flywheels, and make investments that are long-term.”