At the end of March of this year, Hotung Venture Capital general manager S.C. Hong accepted an invitation from the Monte Jade Science & Technology Association in the eastern US to go to New Jersey to deliver a speech explaining the high technology investment situation in Taiwan. Immediately after the meeting, he accepted a pile of enterprise creation proposals from overseas scholars reaching 30 or 40 centimeters.

With so many plans, Hong first spoke with the planners individually. If the product seemed to have a future, the operator had correct concepts and there was a decent operating team, the plan would be taken into consideration and handed over to specialists to evaluate the feasibility.

Last year Hotung evaluated more than 250 investment proposals and selected only 15. As of March of this year they have already filtered through more than 100 cases and no more than five have gotten the nod.

What are the standards for choosing the five percent that make it?

The main considerations for Hotung are whether or not the product meets the needs of Taiwan's current stage of economic development, as well as the company's operating principles.

Insofar as products are concerned, although the venture capital company is able to choose from within ten strategic sectors identified by the government, "the domestic development environment is still not right, there is inadequate manpower and the market is not easy to break into for items such as biotechnology, special materials, and the aerospace industry, so we aren't likely to rush in and blindly invest," says Hong.

Profit is the goal of a venture capital company, so it cannot but adopt a conservative attitude. As a consequence, most of the products selected are in the midst of growth periods, like the communications, information and environmental protection sectors.

As of last year, Hotung has already invested in 25 projects in Taiwan. Of these more than four- fifths produce electronics and communications products. Of the ten cases of investment abroad, nine are electronics or communications and the other is biotechnology.

"Domestically, manufacturing techniques are relatively strong, so it is best to have products which have already been developed, which are suitable for commercialization, and for which the market demand is strong, so a factory can be built for immediate production," he says.

The operating team will decide the future success or failure of the company. "In the past. everybody assumed that all a high-tech company needed was technology to be successful. Later it was discovered that management skills are also required," points out Hong. According to their studies of domestic and foreign experiences, the cause of failure of many companies is by no means that the product is poor, but that management is unsatisfactory. As a result, it is best to include one or two business administrators when organizing the management team.

Founding an enterprise requires total commitment. Many foreign scholars can't bear to part with their achievements in the US, but really want to return to Taiwan to develop a business. So they leave their families in the states and become highflying commuters between the two places. As a result, they are often unable to take care of either.

Further, the first thing you hear from some people is stocks or salary. "We are extremely wary of this type of individual," says S.C. Hong.

The most important tests in evaluation are the future of the product and the organization and outlook of the management. After getting past these Scylla and Charybdis, the venture capital company does further evaluation and assesses the problems the enterprise proposal might face in being implemented. For example, it estimates the technology, capital, personnel and facilities needed for manufacturing.

Hotung is relatively cautious. The time required from receiving the proposal to the formal signing of the contract takes several months at the fastest, and may take up to a year.

Prudence of course is necessary to reduce the rate of failure. Of Hotung's domestic investments, only two are in the red, and one has gradually become profit-making.

With so many conditions, how can would-be entrepreneurs make the grade?

Foreign scholars wishing to return to Taiwan to open companies could first go through the periodic activities sponsored by the Monte Jade Science & Technology Association and the Chinese Institute of Engineers U.S.A. on the US east and west coasts respectively. They shouldn't just hastily draft a plan and then go looking for investors.

"Of course the best way is still to come back to Taiwan in person, to see whether or not your specialization and experience fit the needs of the domestic environment," Hong concludes.

[Picture Caption]

70% of venture capital firms' investments are in the information and electronics industries. (photo by Diago Chiu)