Lack of successful exits and quality startups are just two of the many reasons why angel investment still hasn’t taken off in Taiwan, says the author
If you look at the statistics of a country like Taiwan you would automatically think: “why isn’t this country producing more startups?
For one, although it is a small with only 23 million, it has one of the largest number of electric and computer engineers in the world, together with a long history of tech production.
For another, money also doesn’t seem to be a problem, since just recently Jack Ma announced that Alibaba would start providing funding to Taiwanese startups in different stages through its non-profit Taiwan Entrepreneurs Fund worth almost US$307 million. Taiwanese entrepreneurs in the commodities and services space can apply for investment in order to expand their market to Greater China or the world through this fund.
It also has startups that have managed to raise great amounts of funding and expand beyond its borders such as Taiwan-based artificial intelligence startup Appier, which closed a US$23 million Series B round, and Pinkoi, an e-store for designers to sell their wares that secured a US$9 million investment.
However, most of Pinkoi’s and Appier’s investments came from foreign investors, such as Sequoia India and Japan’s GMO Venture Partners. And cases of Taiwan startups expanding outside of its borders are still rare.
PicCollage, a photo collage app, is still one of the few local businesses that has managed to break into the US market.
The lack of good exits is a problem that some people in Taiwan have attributed to the lack of angel investment, while others blame the lack of quality startups.
No traction? No deal
“If you’re an entrepreneur just coming from university, you better have a rich daddy,” says Ronald Yu, an entrepreneur who has already created two startups — an online store that uses facial recognition, and Get Alfred, a valet parking service.
He started Get Alfred with US$200,000 raised from friends and family. He believes that if you have a concept but no traction, it will be very hard to get investment in Taiwan.
“I’ve heard that in China if you have a good educational background, some investors will trust you. Investors are smart, they want to see a constant growth and get a return on their investment as fast as possible. So, without exciting traction, you won’t attract them that easily,” he says.
Many of his friends working for corporations such as HTC, Mediatek or Asus ask him if they should quit and create their own companies, rather than just working in the programming sector. And he tells that the way to getting investment can be arduous.
The changing scenario
Weiting Liu knows all about how difficult it can be. When he first started Codementor, an open marketplace for coding tutoring, he needed investment in order to find a partner and expand. Thanks to personal contacts, he got a five-figure investment from local VC fund, TMI.
After receiving funding, he graduated from the Silicon Valley accelerator TechStars and raised US$1.2 million from TechStars Ventures, 500 Startups and the Foundry Group. But he is one of the privileged few.
“The last three years have seen the number of startups in Taiwan and angel investment reach an all-time high. However, I think investment knowledge in Taiwan is still not evenly distributed. There’s a couple of smart angel investors (sic) but a lot of investors who see themselves as angels but invest in an outdated and local way,” says Lu.
He believes because Taiwanese startup success stories are still rare, the average Taiwanese angel investor is reluctant to make risky investments.
Kickstarting the ecosystem
The Taiwanese government has tried creating incentives for international investors to not only invest in Taiwan but also bring in international know-how, mentorship and partnership to the ecosystem.
It has also begun investing on its own by creating the National Development Fund, which gathered US$438 million in funds last year for developing a local startup ecosystem. It was planning to direct US$83 million of the total amount in four different venture capital firms, such as 500 Startups and the local accelerator Appworks.
It has also exerted many crucial changes, such as the creation of an Entrepreneur Visa — providing 2,000 visas for a period of one year starting this July — to foreign entrepreneurs looking to create startups in Taiwan. And it has established a Taiwan innovation and entrepreneurship centre in Silicon Valley.
Some of the most active angel investors in Taiwan are home-grown accelerator programmes modelled after Y Combinator such as AppWorks, which has a US$10 million fund for domestic startups. AppWorks has recently helped 91App, a Taiwan-based startup that builds customised apps for brands and retailers, to raise US$9 million in Series A funding.
Some groups like Angel Club Taiwan have done early-stage investment in many local startups such as PCHome, VMfive and the successful online restaurant reservation EZTABLE. However, before they invest they conduct three-six months of due diligence, so their SOP is not in true angel investor fashion.
“We say here that Taiwan suffers from an “angel” rare disease (sic). We prefer to invest in early stage, but always in VC style, not angel style,” Su Shi Zhong, Secretary General of the Taiwan Angel Capital Association, tells me.
Nevertheless, if you’re a Taiwanese startup, your choices for seed investment are still scarce and a lot of your chances for angel investment reside on successful entrepreneurs looking to blindly invest.
But angel investors do exist in Taiwan
People like Wayne and Matt Huang are there to help you. They are two brothers who, after successfully founding cybersecurity company Armorize Technologies and selling to US’s Proofpoint, now focus on mentoring Taiwanese and advocating Taiwanese innovation.
Both the Huang brothers and Weiting Lu serve as mentors at Taiwan Startup Stadium, a government-created startup cluster looking to educate local startups through mentorship bootcamps and promoting them in overseas startup events. It recently managed to help send UX Testing, a Taiwanese startup that helps improve mobile user experiences using data visualisation, to TechStars and are looking to bring more foreign investors to the island.
However, these mentors also have some complaints about the lack of Series A funding in Taiwan. For which they cite the following factors:
– Lack of business experience in Taiwanese startup founders, who usually come from the same engineering background.
– Lack of a target market for some of the products created by teams
– Lack of global thinking
– Too many copycat products
“We need to bring more successful stories to Taiwan, and show outside and local investors that we have valuable people who can create good products,” says Lu. “Silicon Valley wasn’t created in a day.”
In order for a startup ecosystem to be healthy, it needs success stories and entrepreneurs who, after making it big, go back to do some angel funding. What Taiwan needs is that first ‘unicorn’ to break the mould, and for that Taiwanese entrepreneurs have to start being more innovative and finding their market.
Luckily for Taiwan, that unicorn might’ve already been born.
The views expressed here are of the author’s, and e27 may not necessarily subscribe to them. e27 invites members from Asia’s tech industry and startup community to share their honest opinions and expert knowledge with our readers. If you are interested in sharing your point of view, please send us an email at writers[at]e27[dot]co
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