Homeward bound
With the rise of the Asian economies, investments by ethnic Chinese venture capitalists now span the Pacific and touch on both sides of the Taiwan Strait.
Lin's investments include four companies in China and two in Taiwan. Four years ago MondayTech, a company Lin calls "Taiwan's most profitable online retailer," came to him seeking investment. Last year, the company generated NT$3 billion in sales, and it forecasts that revenues will reach NT$5 billion this year.
In 2003, Ho and Kung established MondayTech as a means to dive into the still-developing online retailing market. When they opened their virtual department store on Yahoo's portal in early 2004, business took off. In fact, their company grew so fast they had trouble keeping up--within 18 months, sales grew from 3,000 to 40,000 items per month.
Online business opportunities are booming in Taiwan. This is expanding the network security market, which is, in turn, drawing overseas tech workers back to Taiwan to start their own businesses. TAITA's Weng hopes to provide some of them with a return route. In 2003, he founded Essence Technology Solution with US$30 million he had raised in Silicon Valley, and made himself its chairman.
Weng hired about a dozen engineers and developed a series of highly complex, highly featured network security chips. By acting as a router and firewall, and providing VPN, VoIP, and bandwidth management functionality, Essence's chips allow the CPU to focus on other tasks and provide the necessarily technological underpinnings for e-commerce.
In the thick of it
In recent years, the tech industries in Taiwan and the Bay Area have become so closely connected that many of Silicon Valley's ethnic Chinese venture capitalists have relocated their families and businesses to Taiwan.
In late 2003, Chen Wu-fu, an entrepreneur of exceptional drive, returned to Taiwan at the invitation of Acer founder Stan Shih to act as chairman of iD Innovation, a VC fund. Chen got the Executive Yuan Development Fund involved, and raised US$60 million for his fund, which invests in four or five companies every year.
Chen, who has especially keen insight into the fiber-optic communications market, has founded 13 companies since 1985. When Cisco purchased one of them, Ardent, for US$156 million only nine months after the company was established in 1996, financial markets lauded Ardent's management for generating such large returns in such a short time.
Chen says that even though the majority of the companies he has founded have eventually been acquired or turned over to another management team, he has never, with the exception of Ardent, which was a joint venture with Cisco, gone into a venture planning to sell it. In fact, he believes that doing so is a recipe for failure.
"I'm not interested in managing companies," explains Chen. "My field is entrepreneurship because it offers the greatest number of unknowns and the most room to maneuver. Entrepreneurs delight in inchoate situations because there are always demands that are not being met." Chen's adventurous personality is unsuited to the drudgery of managing an established company--focusing on the financials, on changes in the market in the coming quarter, on employee morale.... It's exhausting.
Looking at the tech industry as a whole, Chen feels that the US's advantages are in advanced technologies and mature markets, and notes that Silicon Valley is still the source of the industry's freshest ideas. He sees Taiwan's strength as production management and believes it should be able to leverage its experience in semiconductor manufacturing and chip design to the next generation of technological service industries (e.g. personal health management), the energy industry, and the medical devices segment of the biotech industry.
By the time capital markets recovered from the effects of the dot-com crash, a new wave of ethnic Chinese venture capitalists had already begun investing in a big way, and the young entrepreneurs whom they were backing were starting to create a stir. Some of these investors have kept their involvement out of the public eye, while others have quietly lent their support. As the business cycle turns, the spirit of innovation is once again invigorating the economy with its life-giving waters, and new ideas are beginning to sprout.
Venture Capital Connects Taiwan and the Bay Area
An old saying runs, "money can't do everything, but without it, you can't do anything." Hence, venture capitalists (who have money) and entrepreneurs (who have heads full of ideas) exist in a symbiotic relationship to one another.
The US was the birthplace of the world's venture capital (VC) industry, and Silicon Valley, which is home to half of the US's 600-some VC firms, might be said to be the heart of the US industry. Surprisingly, Taiwan isn't that far behind: it and Israel are second only to the US in terms of the development of their VC industries.
When Taiwan was creating the Hsinchu Science Park in the 1980s, Li Kwoh-ting, then the minister of finance, Hsu Li-te, then minister of economic affairs, and Acer Group founder Stan Shih, traveled to Silicon Valley to study its tech industry. Li discovered that the behind-the-scenes activities of VCs were driving the development of the US's high-tech industry, and therefore began cultivating Taiwanese VCs to support the development of Taiwan's fledgling tech industry.
In 1983, the Ministry of Finance established the Regulations Governing Venture Capital Firms, thereby paving the way for the industry in Taiwan. The Executive Yuan's Development Fund and Chiao Tung Bank then raised NT$800 million to establish the island's first VC seed fund.
In 1984, Acer Computers and Continental Engineering together formed Taiwan's first VC firm, Multiventure Investment. Soon after, Silicon Valley venture capitalist Hsu Ta-lin returned to Taiwan at Li's request and established another VC firm, H&Q Asia Pacific. Hsu had great difficulty raising the firm's first US$50 million. He ended up sourcing nearly half the money from Far Eastern Textiles, President Enterprises, and Mitac Computers, and receiving another 49% from the government.
In the 1990s, Taiwan's venture capitalists invested heavily in the emerging semiconductors industry, including firms such as Taiwan Semiconductor Manufacturing Corporation, Macronix, Winbond, and Mosel Vitelic, with considerable success.
According to the Taiwan Venture Capital Association, Taiwan's VC industry grew from 48 firms in 1996 to 259 in 2004. It invested NT$172.2 billion in 9,782 ventures in Taiwan and abroad over the same period. Over the years, these firms have succeeded in listing more than 400 of their investments on the stock market, but they have had anything but a smooth ride.
When the networking and fiber-optics industries collapsed in 2000, VC firms around the world entered a four-year period of consolidation. Taiwan's economy was battered again in 2003 following the outbreak of SARS, and investment dried up for a time.
As a result, Taiwan's VCs were able to list only 39 companies in 2004, down from 68 in 2002.
Taiwan's VCs also changed their geographic focus in 2004, choosing to direct a larger percentage of their investment to local companies with which they were more familiar. In fact, the percentage of VC capital going into local firms rose from 66.4% in 2002 to 80.2% in 2004, while the portion going to Silicon Valley ventures declined by nearly half, from 18.9% of the total to only 9.96%. But with the world moving towards regionalized economies, Taiwan's VCs know they must again look beyond Taiwan's borders.
(Teng Sue-feng/tr. by Scott Williams)