It is encouraging to see the Cabinet stepping up its efforts to further support local startups, including pushing for a new crowdfunding rule to help finance microbusinesses at a time when the nation’s economy lacks new stimulus from within and external demand is becoming unmanageable.
The new crowdfunding rule, popular in developed nations for years, is expected to take effect at the end of April at the earliest based on the Financial Supervisory Commission’s roadmap. The platform would make it easier for businesses with capital of less than NT$30 million (US$952,300) to obtain capital injections to turn their business ideas, or new technologies, into profitable enterprises and improve the economy.
This step by the commission to support startup entrepreneurs comes after the launch of the Go Incubation Board for Startup and Acceleration Firms (GISA) in January last year. The new trading board is an effective tool for small businesses to raise funds for business development, with more than 100 local companies having listed their shares on the GISA. The commission expects the number to increase to between 500 and 800 within the next four years.
The Cabinet is doing the right thing in creating a more business-friendly environment to stimulate the growth of local startups by offering multiple fundraising tools. Those new fundraising platforms are crucial, as it becomes increasingly difficult to secure investment for startups, given that the nation’s venture capital market shrank rapidly from a peak of NT$240.56 billion in 2000 to about NT$140 billion last year, based on Taiwan Venture Capital Association figures.
It is admirable that Premier Mao Chi-kuo (毛治國) is striving to steer local industries along the “right” path with less than one-and-a-half years remaining in his term. However, it is bewildering that the Cabinet plans to adopt a conventional approach to jump-start local startups by using state funds to invest in new companies and technology companies only. As part of the Cabinet’s broader efforts to grow technology startups, it said last week that it planned to form a US$30 million fund jointly with local private investors in Silicon Valley to reconnect Taiwan’s talent and manufacturing sector with the US.
Two years ago, Taiwan was a developing nation and the government had to use national resources to push for industrial development, but the economy has evolved. The government’s job is simple: Create a business environment suitable for industrial development by tackling two fundamental problems — lack of strong incentives and lack of global talent.
Taiwan has canceled the 20 percent taxation break for new corporate investments, and startups face high investment risk and low returns. Startups do not enjoy high multiples like their US peers and are limited by their face value of NT$10 per share. In the US, startups’ initial public offerings can prove highly lucrative.
Rigid taxation schemes weaken startups’ ability to pay skilled employees. In the US, employees of startups have to pay up to 45 percent personal income tax, but only pay 17 percent for their company options. That leaves leeway for companies to pay less in regular income, while making it up in company options. In Taiwan, there are no such tax incentives. Employees have to pay full income tax, combining their regular paychecks and stock bonuses at market value upon receiving them.
Lack of global talent is a serious issue for local corporations. Twenty years ago, Taiwan’s economic boom was supported primarily by young talent with strong overseas educations and work experience. Now, most young people prefer to stay in Taiwan, or go abroad for working holidays to make quick money. If the government cannot come up with effective measures to encourage overseas education, or resume elite education in Taiwan, the talent issue will worsen.
To have sustainable growth in startups, those fundamental problems must be addressed. Mao’s short-term stimulus is not a long-term solution.
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