The private sector is flush with cash, but this money is not finding it's way into the investment market in the Republic of China. This situation is creating a bottleneck in the economy. According to the latest postal statistics savings in Taiwan have now reached U.S. $10 billion and other financial institutions are experiencing the same "problem." The government is trying to unlock these "idle cash" deposits for investment. A successful economy has produced this abundance of cash and the government hopes that the same spirit will channel these funds into Taiwan's future: Venture Capital.
The U.S. high-tech nerve center is located in the now famous Silicon Valley. In the past ten years this 300 sq. miles of chips, circuits and communications has become the focus of the entire techno--world. Spread throughout this suburban setting are 6,000 PhDs working day and night trying to duplicate the "Apple" success story. Behind each one of these Cinderellas sits a venture capital firm with high-tech's glass slipper--investment capital.
The venture capitalist is a new breed of economic animal, willing to take on the high risk and high cost of the 21st century technologies in return for profits of even greater magnitude. Most of the venture capital is flowing to the high--tech industries because that's where the high profits are. These whiz kids of megabucks are the push behind the computer shove that is making the Silicon Valley sparkle like a diamond in the San Jose rough.
In 1977 two young men--Steven P.Jobs and Stephan G. Wozniak--had an idea, to bring the computer into the living-room. With a compact size, simplicity of operation and a multitude of functions, their "Apple" did indeed find it's way into America's living-room, and the world's to the tune of almost 600 million in sales in 1982. But, without venture capital they would still probably only be two young men with an idea.
This kind of story is, of course, not repeated everyday. For every success story there are 8 failures that nobody ever hears about. But, the spirit of the venture capitalist is that the more times you come up to bat the more hits you will get. There is no profit without risk.
The venture capitalist needs expertise in a wide range of fields ranging from law to technology, from the market to the laboratory. They first will analyse the merits of various investment opportunities and then find partners to spread the risk. The winning investments are few to be sure, but the incredible profits to be realized are staggering. So staggering, in fact, that the overall rate-of-return has attracted the investment dollar from a wide assortment of sources.
It's for these reasons that the government, here on Taiwan, is now actively engaged in the venture capital business. Because of the special relationship between investment, economic development and venture capital, government and private business are cooperating to bring tomorrow to Taiwan today. A plethora of government agencies, financial institutions and private businesses are making the blueprints for the future of venture capital in Taiwan.
Two years ago the "Venture Capital Management Regulations Act" and the "Venture Capital Support Act" were passed, representing Taiwan's first step in that direction. The "Support Act" has set the limits to investing in the science industries--information and automation systems, energy, computer components, lasers, etc.
These are all highly capital intensive industries. Thus, not only do they need to attract the domestic investment dollar but also the overseas Chinese and foreign investment dollar as well. Investors in these targeted areas not only will enjoy tax advantages but also a loosening of the restrictions on the movement of foreign reserves.
Financial institutions are helping to direct the surplus of cash into these "strategic" industries. The Bank of Communications has already earmarked U.S.$25 million for investment sometime later this year. On the foreign side, the China Trust Company is working with a Swedish venture capital company searching for investments in the domestic market as well as the European market. The European market has traditionally been a closed market for the Taiwan economy. By cooperating with European firms the government hopes that a new and potentially huge market will be opened for the exports of Taiwan. Cooperation with foreign firms also brings the added benefits of technology transfer and experience in previously unknown markets.
Following the lead of the government private industry is starting to form consortiums of venture capital companies. The "San Yang" motorcycle company has already invested in two Silicon Valley companies and this year has signed an agreement with the U.S. venture capital firm Hamberecht & Quist (H&Q), the second largest venture capitalist in the States. They already have plans for investing U.S.$20 million in these high growth industries. As more U.S. companies look to Taiwan for their sourcing needs, Taiwan will be gaining the experience it needs to do some venturing on it's own. The seeds have been planted now and it remains to be seen what will grow.
A leading venture capitalist in Taiwan sees two important first steps in the investment process. The first is careful analysis of the proposed product and the prospects of a receptive market. If the first step is approved the second step is even more important. Meeting the "investee" face to face to judge his commitment and belief in their own project. The investors and the investees must work closely together; if there are going to be problems it's best to find out early on.
The inventor or designer of a new product will care for their company as parents would for a child. The venture capitalist on the other hand is always looking for new opportunities and will be willing to part with a company that is standing on it's own financial feet. To sell interest in a commercial concern takes an organized market, Taiwan is also in the process of developing a reliable and stable stock market to reach this end.
Expanding a stock market is a prime concern of the Ministry of Finance. Facilitating the selling of stocks will also facilitate the recycling of investment dollars back into the economy. With a viable stock market the average citizen can also participate in the development of the economy.
Venture capital companies are a nascent industry in Taiwan and there are disagreements as to where to go and how fast to get there. There are regulations limiting venture capital to 15% of the total capitalization of any one company. Some venture capitalists counter that that will hinder the flexibility of the investor. The government responds that a concentration of risk is dangerous for the whole society. The debate will continue and as it does Taiwan is getting a peek at tomorrow.
(Kirby Chien)
[Picture Caption]
Qume Corporation's manufacturing operation in the Republic of China--part of the largest manufacturer of printers in the world. Qume is an example of venture capital striking gold in Silicon Valley.
1. The Bank of Communications often sits down with leaders in private industry to discuss investment opportunities. 2. The Bank of Communications' Assistant General Manager Chunnan Pai discusses development of the domestic venture capital industry.
Facing. After signing a cooperation agreement, H&Q Corporation's President William Hamberecht(l.) shakes hands with the Ministry of Economy's Vice Minister Wu Mei-ts'un(m.) and the Chairman of the Board of Chin Fong, Shi H. Huang M.D.(r.).
Multiventure Investment Inc.'s General Manager Shih Chen-lao(l.) and Assistant General Manager Ch'en Cheng-t'ang(r. ) .--the best of partners.
1. The Bank of Communications often sits down with leaders in private industry to discuss investment opportunities.
2. The Bank of Communications' Assistant General Manager Chunnan Pai discusses development of the domestic venture capital industry.
Facing. After signing a cooperation agreement, H&Q Corporation's President William Hamberecht（l.） shakes hands with the Ministry of Economy's Vice Minister Wu Mei-ts'un（m.） and the Chairman of the Board of Chin Fong, Shi H. Huang M.D.（r.）.
Multiventure Investment Inc.'s General Manager Shih Chen-lao（l.） and Assistant General Manager Ch'en Cheng-t'ang（r. ） .--the best of partners.
