But if you pull aside the veil of myth that surrounds the valley, you find that the hand rocking this cradle belongs to the money men-the venture capitalists.
The Hilton Hotel in downtown San Jose (one of the many cities that make up Silicon Valley) is filled to overflowing with reporters representing Chinese-language newspapers, magazines and TV stations. Mr. Eric Ho, a businessman originally from Taiwan, is patiently explaining his company's new "Super Internet Classroom" educational software, which is based on an American curriculum.
The hand that rocks the cradle
"We worked very hard for a long time before we finally got something we were happy with," says Ho's wife, the fresh-faced and somewhat shy Cathy Wang. Of the people who worked with them, she says she is most grateful to Jesse Chen of Maton Venture and Tai Chung-ho for the financial support they provided in getting their business started.
Chen, who is the current president of the west coast chapter of the Monte Jade Science and Technology Association, has, for the last few years, been bringing Taiwanese capital into the Valley to help overseas Chinese start up businesses. By bringing together fearless youth (the technology developers) and older, wiser heads (the financial managers), he has created a bridge between the two places. And the Taiwanese money that he is bringing in is just the tip of the iceberg.
"All of Taiwan's major business groups have established venture capital companies in Silicon Valley," says Lee Jyr-dwo, vice president of Champion Consulting Group, the subsidiaries of which include Chien Kung Venture Capital and Champion Investment. Lee says that the flow of Taiwanese capital into the valley is a new trend in the relationship between the "Silicon Siblings"-Taiwan and Silicon Valley. According to statistics from the Taipei Venture Capital Association, overseas investment accounted for 27% of Taiwan's venture capital investments last year. And Silicon Valley has been something of a "black hole" for this money, having sucked in some NT$8 billion from Taiwan, according to conservative estimates.
Venture capitalists have been on the rise domestically, as well. Last year alone, the actual paid-in-capital of new venture capital firms totaled more than NT$17.5 billion, doubling the previous year's total.
In fact, venture capital investments are another Silicon Valley transplant. More than 10 years ago, the impetus provided to Silicon Valley by venture capitalists had already been noted in discussions between national policy advisor Li Kuo-ting and domestic and overseas technology experts. They therefore went about trying to import the idea of venture capitalism into Taiwan, even creating the "Venture Capital Management Regulations" to encourage investment in new areas of high technology.
"Risk capital"
When the idea of venture capital came to Taiwan from Silicon Valley, it was largely through the efforts of technologists with an overseas background. One of these was Hsu Ta-ling, a former IBM manager. Hsu, who was recently named one of 50 Asian "stars" by Businessweek magazine, is now chairman of H&Q Asia Pacific, a subsidiary of the US' Hambrecht and Quist.
Hsu says that the "high risk, high reward" field of venture capital investment is typical of high technology in that if you get your product out, you may get rich overnight, but if you don't, all you can do is tell yourself, "Ah, well, I guess I misread that situation." For some, the risk is part of the allure.
However, "At that time, Taiwan was very conservative about investment. Li Kuo-ting was afraid that if the partners who were investing the money heard the word 'risk,' they would bolt. So rather than call venture capital 'risk capital,' as it was translated at the time, he called it 'start-up capital,'" remembers Hsu, unable to hold back a laugh.
Unfortunately, in spite of the excitement that surrounded the importing of the new idea of venture capitalism into Taiwan, it turned out to be unworkable here.
"Silicon Valley has a solid technological foundation, and new ideas pop up everywhere. In the old days, there was Apple Computers. Now, you have Yahoo! and Netscape. Investors look for innovations, scattering their capital all over the place in the hope of being a part of one of these companies which returns 50 or 100 times their investment," says Hsu. But he points out that Taiwan is different. There aren't so many new ideas on the island and so the venture capitalists have no stage on which to perform.
Hsu says, "After a period of groping around in the dark, we decided to go with the trends. Taiwan is strong in production, so our investment target became the importation of new technology for production in Taiwan." Nine years ago, Wu Ming-chiu, a Silicon Valley academic, returned to Taiwan with a group of 30 or 40 other technologists and established Macronix, an IC maker which produces non-volatile memory such as flash memory and ROM. And it was H&Q Asia Pacific which helped them get started.
"Venture capitalism aims to make money, but that isn't its most meaningful aspect," says Hsu, who possess a patriotism typical of those who went into technology in the early days. In fact, right now he has two investment proposals in front of him which would help Taiwan realize its dream of becoming "Silicon Island."
Investing wisely
Hsu Ta-lin says that a hard drive industry is one of the few PC and peripherals industries that Taiwan hasn't been able to get started. This is something of a sore point with the local high-tech industry. The key to hard-drive production is the drive head and IBM owns the best drive-head technology. Interestingly, it was Hsu who once led the development team which IBM had working on drive heads. Later, other members of this team struck out on their own. Somewhat by chance, as Hsu hadn't set out to provide financing to his old colleagues, H&Q Asia Pacific ended up investing in this group which intends to set up hard-drive production in Taiwan. Once up and running, the company will combine Silicon Valley's technology and Taiwan's strength in production to go after a share of the hard-drive market.
Similarly, although Taiwan is the world's number-two producer of notebook computers (in terms of units produced), it does not manufacture one of a notebook's key components-its LCD monitor. Instead, Taiwan must rely on Japan and Korea. In fact, Taiwan imports more than US$1.0 billion worth of LCD monitors every year.
For this reason, H&Q Asia Pacific, which has never before invested in Northeast Asia, plans to take advantage of the cash crunch which the Asian financial crisis has caused in Korea to buy an LCD factory. Once it has done so, it will import the LCD production technology into Taiwan where it will begin production.
"Once Taiwan can produce hard drives and LCD monitors, Taiwan's computer industry will be 'complete,' producing everything except the computer's heart and mind-the CPU and the operating system." Hsu can't conceal his excitement: "At that time, Taiwan will be the world's 'one-stop shopping center' for PCs. The whole world will have to take a fresh look at Taiwan."
Large-scale investments and acquisitions are not exactly what venture capital is usually thought to be about, but Hsu feels you have to "go with the flow" if you hope to succeed. He says, "Taiwan has money. If we invest it wisely, we can create a large niche for ourselves."
Development vs. production
Another issue is that the Silicon Valley model of investing in companies developing new products cannot be directly transplanted to Taiwan. Taiwan's focus is different, so venture capital in Taiwan has made its name by investing in manufacturing. There are currently 60-70 listed companies which venture capitalists have helped to get off the ground including Winbond, Macronix and Mosel Vitelic.
Over the last two years, electronics shares have been hot, causing many of Taiwan's industrialists to think of high-tech as "the goose that laid the golden egg." Such thoughts have led them to set up venture capital firms. "Traditional manufacturing conglomerates can use [venture capital firms] to get into the high-tech field and begin enjoying some of high-tech's high profits. And firms such as United Micro Electronics (UMC) and Umax, which had a high-tech background to begin with, have utilized this knowledge; they haven't let this opportunity get away," says Li Chih-Tzo. Li says that there are now more than 100 venture capital firms in Taiwan and the competition for good investment targets has become "white hot."
But to avoid having all of their eggs in one basket, "Most venture capital firms divide their investments between Silicon Valley and Taiwan." And Hsu Ta-lin says that most firms divide this investment based on the principle: "Silicon Valley creates it, Taiwan makes it." But regardless of which one of the "Silicon Siblings" Taiwan's money flows into, the majority of it remains within the Chinese community.
"The Chinese have a stronger entrepreneurial instinct than other peoples. Moreover, venture capitalists looking for investment targets are a lot like a boy courting a girl: even more important than the empirical measurements, are your connections and trust." Li Chih-tzo says that the world of high-tech is a small one and everybody has some sort of connection. If you aren't alumni of the same school, then you've probably at least worked at the same company in the past. In addition, people tend to run into each other at meetings of associations like the Monte Jade Science and Technology Association or the San Francisco's Chinese Institute of Engineers. The fact that these networks are so tightly woven, with a shared language and shared cultural values, encourages Taiwan's venture capitalists to invest with other Chinese.
Mike Moritz, a partner in the American venture capital firm Sequoia Capital, was one of those making presentations at a venture capitalists' forum held by the Monte Jade Science and Technology Association in the southern Bay Area in September of last year. In his presentation he noted that on average he reviews 20 applications for investment every day. He says that, in the end, what is actually required to clinch a deal is a person who is familiar with both sides involved. Moritz does emphasize, however, that investment decisions are not made based on feelings for or trust in a particular person; the main focus in evaluating an application remains the marketability of the new product in question.
Umax Technologies Vice President Bobby Chao, who is concurrently responsible for Umax's American venture capital subsidiary, has a different view. He says that Taiwan's venture capital investment in Silicon Valley amounts to only "small potatoes." According to him, Taiwan doesn't have the channels by which to approach the really first-rate mainstream startups. And even in dealing with Chinese, they don't necessarily have an advantage.
Raising mushrooms
Chao says, "Generally speaking, in the US people are willing to exhaust themselves at a startup company in the hope of getting it listed on the stock market and recouping their capital. Who can best help a company get listed on the [US] stock market? Naturally everybody thinks that Americans can." Suppose some young overseas Chinese engineer feels he has talent and wants to start his own business in the US. He also hopes to use an American venture capitalist's connections and management to bring him into the mainstream and get him well established in the US.
Taiwan's sense of mission deserves some serious examination because it is likely to make this kind of overseas Chinese engineer uncomfortable. Chao says, "Taiwan's venture capitalists want to provide money and support. But an overseas Chinese starting up a business is going to be afraid that the venture capitalist's first priority will be to take his technology back to Taiwan and produce it, confining his company to Chinese business circles. This is not what he wants."
Chao knows that his being Chinese isn't enough, that those overseas Chinese with first-rate ideas won't necessarily turn to "one of their own" for help. He therefore emphasizes that Taiwanese venture capitalists operating in Silicon Valley must be very clear about what they are doing and must act very quickly. They must move in as soon as the entrepreneurial urge begins to bud in some young engineer's head. This requires exceptional perception and a very firm grasp of the new trends in high tech.
In the words of Minister of State Yang hih-chien "Start ups are vigorous; they're like a bunch of growing mushrooms, each straining to stretch its head above the others." This is true in both Silicon Valley and in Taiwan. Given a little bit of time, Tai-wan's venture capitalists have the potential to develop even more in both of the "Silicon Siblings."
p.29
There are always a number of innovative ideas on display at computer exhibitions every year. Bringing together technological innovation and capital is the mission of venture capitalists.
p.30
Hsu Ta-lin, who runs Southeast Asia's largest venture capital fund and was recently named one of 50 Asian "stars" amiably discusses the history and outlook of venture capitalism in Taiwan.
p.31
The high volume of large-size LCD monitors which Taiwan brings in every year are one of the island's most expensive imports. Taiwan is seizing the moment to import South Korean technology to set up LCD factories in Taiwan. Pictured is a new model LCD monitor.
p.32
Getting their investments listed on the stock market is the goal of venture capitalists. With the enthusiasm that stock markets in both Taiwan and the US have shown for electronics shares over the past two years, more and more people are becoming interested in high-tech venture capitalism.
Getting their investments listed on the stock market is the goal of venture capitalists. With the enthusiasm that stock markets in both Taiwan and the US have shown for electronics shares over the past two years, more and more people are becoming interested in high-tech venture capitalism.
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