In the heart of Silicon Valley, there is a 9km stretch of suburban road from which billions of US dollars flow each year. Countless eager start-up founders hop door to door in the hopes that their passion is infectious enough to convince one of the street’s dozens of venture capitalists to inject their dream with an influx of cash, sending them on their way to become the next elusive unicorn start-up.
Sand Hill Road has been integral to Silicon Valley’s continued success as a hub of global innovation. Venture capitalists are willing to throw money at even the most outlandish ideas on the off chance that they see returns in excess of 100 times their initial investment.
Without these investors, the best a founder can hope for is either government or corporate funding. Although generous, neither is likely to bet on a long shot, demanding near-immediate returns that could stifle a fledgling company.
Taiwan has an immense amount of latent innovation potential. The World Economic Forum’s Global Competitiveness Report in 2018 and 2019 ranked Taiwan highest in Asia and fourth in the world in “innovation capability,” and the value of its link in the manufacturing supply chain is well understood.
All the ingredients seem to be there, yet Taiwan has few unicorns to its name. Recognizing this potential, the National Development Council (NDC) in 2018 stepped in with what it calls the Action Plan for Enhancing Taiwan’s Start-up Ecosystem. The plan has done well to increase volumes and decrease barriers to funding, but returns have been minimal compared with the effort put into it. Clearly, something is still missing.
While higher volumes are good, it also matters where the money is coming from. Globally in 2019, venture capitalist funding was four times corporate funding, most of which was in the US. That year alone there were 142 new unicorns worldwide, 78 of which were in the US.
However, in Taiwan, the ratio is flipped. From 2015 to 2020, 56 percent of all start-up funding deals were from companies, compared with only 42 percent from local venture capitalists, the council’s data showed. This likely means that “riskier” companies are not receiving funding.
Taiwan should play to its advantages. It now has a greater claim to the title “silicon” than any valley in California, a state that has most of its success in the software industry. With its hardware dominance, Taiwan could carve a niche for itself as a world-leading design and manufacturing hub. The trend seems to be heading in this direction, with the vast majority of deals and funding dollars going toward health technology from 2015 to 2020, followed by electronics and energy.
Taiwanese venture capitalists should also heed the lesson offered by Sand Hill Road and go where the talent is. Hsinchu is home to the nation’s best in semiconductors and other highly competitive industries, many of whom must have ideas for promising start-ups. Having venture capitalists readily available is good for the firms’ busy founders and sends a message that their ideas are valued and valuable. Anyone with a pitch could easily bounce around to potential investors without taking time off from their demanding day job.
Considering Taiwan’s potential, it is a shame that funding is not as free-flowing as it could be. Those with the means would be wise to recognize the latent unicorns around them and invest heavily in venture capital firms to lure them out of hiding.
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