Last Saturday, Taiwanese voters re-elected President Tsai Ing-wen to her second term after an election that split the country among generational and ideological lines. A crucial issue were the differences in how Tsai, a member of the Democratic Progressive Party (DPP), and her main opponent, Han Kuo-yu of the Kuomintang (KMT), approach Taiwan’s fraught relationship with China.
Despite the highly polarizing run-up to the election, however, both the DPP and KMT have taken measures to foster entrepreneurship in Taiwan. Now that Tsai has won, many investors don’t expect a dramatic impact, but instead are keeping an eye on how policies put in motion by both parties will play out. They are also looking for political allies who understand the startup ecosystem in Taiwan, which is often overshadowed by large hardware OEMs and semiconductor companies.
Policy
Joseph Huang, an investment partner at Infinity Ventures, has worked with both the DPP and KMT as limited partners, and says “from our side, they are always asking for how to create more awareness of Taiwan startups, how do we help them with institutions, how do we help them more?”
That sentiment is shared by other investors, including Tina Cheng, managing partner of Cherubic Ventures, who said “both are trying really hard to win over the segment. A lot of our portfolio got calls from candidates from both sides that wanted to invite entrepreneurs to their events to show that they care about the younger generation and innovation.”
Both parties have created policy to help new businesses in Taiwan. Legislation passed under Tsai’s previous term includes an amendment to the Company Act that came into effect in November 2018 and is meant to help startups by giving them more flexibility, including measures that allow private companies to issue preferred shares and make registration easier for foreign companies while improving corporate governance.
But the amendment only passed after three years of debate among legislators, who remain divided over some key details. Tsai’s victory may give the policy a more stable environment in which to develop and mature.
Joseph Chan, a partner at AppWorks, says that the policy comes at the right time to encourage more entrepreneurship and investment in Taiwan, but adds that it is “not perfect yet, there are still details that need to be figured out, like different voting rights, different preference shares, that are already common in the U.S. and Cayman Islands.”
Other initiatives launched under Tsai’s previous term include the New Southbound Policy to encourage closer business ties between Taiwan and Southeast Asia, Australia and New Zealand. The administration also continued promoting the Entrepreneur Visa Program established under previous the president, Ma Ying-jeou, a member of the KMT, to attract founders to Taiwan.
Edgar Chiu, co-founder and managing partner of SparkLabs Taipei, says visa initiatives have already helped the startup ecosystem. SparkLabs Taipei launched its accelerator program in 2017 and about half of its applications have come from overseas.
“I think that is a phenomenal position for a lot of international entrepreneurs who want to try and take Taiwan as a stepping stone to enter the Asian market,” Chiu says.
Overseas markets
The trade war between the United States and China is impacting Taiwan-based semiconductor and hardware manufacturers with operations in China, like TSMC and Foxconn, but tech startups have been affected less, in part because many never viewed China as a viable market to expand into, especially if they focus on consumer internet services.
Taiwan “is a Facebook, Amazon and Google economy, but China is a WeChat, Alibaba and Tencent economy,” says Infinity’s Huang. “Your cloud infrastructure, social media, how you market and accept payments, is all different.”
But Taiwan, with a population of 24 million, is a relatively small market, so startups often launch with an eye to expanding overseas. Some, like video platform M17 and on-demand booking service FunNow, work with local partners to enter Japan, while others turn toward the United States or Southeast Asia, depending on their sector.
“If it is related to IoT, hardware or deep tech like AI, the main market is still the U.S., especially for IoT,” says AppWorks’ Chan. “For consumer-related services, especially with an offline component involved like delivery, we still strongly feel that Southeast Asia is the best market for Taiwan to tap into.”
While some hardware companies have begun relocating their operations from China to Vietnam, many use components made in Taiwan.
The trade war may convince more startups to set up research and development operations there as well, says SparkLabs Taipei’s Chiu. “This is something Taiwan is strong in, and now is the time for the Taiwanese government to think about how we can use this opportunity to attract more talented engineers, build the startup ecosystem and catch up on those opportunities.”
The Taiwanese government has launched or subsidized several programs intended to create a more cohesive startup ecosystem, including Taiwan Tech Arena, Taiwan Startup Stadium and entrepreneurship grants from the National Development Fund. But investors say that having more policymakers who work closely with startups and understand firsthand the challenges they face in Taiwan’s regulatory landscape is also key.
Two politicians who have served as important allies for startups because of their entrepreneurial experience are Jason Hsu of the KMT, an advocate for blockchain technology who helped set up incentive programs, and the DPP’s Karen Yu, who led legislation to encourage fintech innovation by creating a regulatory “sandbox.”
“Regulation in Taiwan is quite tough, and they helped a lot of startups get away from hurdles,” says Simon Fang, partner at Darwin Ventures. “Both of them did a lot of good things.”
Reaching voters
It is also important for political parties to motivate younger voters, whose support helped Tsai to victory, in part because they found her viewpoints more appealing than Han’s controversial populism, but also because the DPP was able to engage with them more effectively through its messaging and social media.
At the same time, many voters expressed frustration about the focus on ideological differences before the election, particularly over Taiwan’s identity and how it relates to China, instead of policy. Saturday’s election also included 113 legislative races, and several candidates were viewed as part of a “youth squad” attracting younger voters by focusing on policy beyond Taiwan and China’s relationship.
These include the DPP’s Enoch Wu and the KMT’s Wayne Chiang, who ran against each other to represent Taipei’s third district. Both Wu and Chiang have political pedigrees — Wu is the nephew of former DPP Secretary-General Wu Nai-ren, while Chiang is the great-grandson of former President Chiang Kai-shek — but downplayed their family backgrounds in favor of their experience. Wu worked at Goldman Sachs and served in Taiwan’s special forces, while Chiang was a lawyer who worked with startups in Silicon Valley and Taiwan before entering politics.
Chiang won on Saturday, but their race was notable because it galvanized young Taiwanese voters who want to see more policy discussions about the economy and other issues.
“There is this dilemma where we want our own identity, but we also want progress in the economy. This is a tough situation that really needs someone that has the wisdom and experience to work it out,” says Cherubic Ventures’ Cheng.
She adds, “I think most people feel that the discussion around ideology is not really constructive, and I’m starting to see more people from the younger generation start to articulate these problems in a way that makes everyone start thinking about how to solve them in a constructive way.”
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