Over the past twenty years, Taiwan’s venture capital industry has grown and developed, raising NT$ 17,000,000,000 in funds, which has been invested in over 8000 domestic and foreign hi-tech companies. Taiwan’s venture funds have aided over 300 companies to go public in both Taiwan and abroad. In Taiwan, nearly 50% of all listed companies on the Taiwan Stock Exchange and the Over-the-Counter Market were venture-backed. Taiwan’s venture funds have invested NT$ 12,000,000,000 in hi-tech companies, helping make the domestic hi-tech industry become a NT$ 1,500,000,000,000 industry. Furthermore, venture funds’ investments in early stage hi-tech companies have provided technology entrepreneurs with the best-possible management experience, effectively propelling the technology industry’s development. The venture capital industry has served the function of guiding private capital into technology companies and raising the scale and quality of the domestic technology industry--a huge contribution indeed.

The global venture capital industry was hit with a recession in 2001, due to, among other factors, the economic downturn and the bursting of the Internet bubble. Fund and investment sizes shrank, creating many “frozen” funds. In Taiwan in 2001, the amount of new funds raised and average investment size both hit new lows. The situation improved slightly in 2002, but not by much. Beginning in 2003, it appeared that the venture industry was on its way to getting back on its feet when the SARS epidemic swept across the Greater China region, devastating investor confidence and creating conservative approaches towards investments.

Furthermore, in the past several years, Taiwan venture funds have been faced with a cash shortage and fundraising difficulties, a situation which has yet to turn around completely. Although the Executive Yuan’s Development Fund proposed a plan to create a fund which would then invest in venture funds, it is only willing to provide 30% against 70% to be raised by the private sector.

In order to raise the development of domestic entrepreneurship to the next level, what Taiwan has to offer in technology, human resources, the capital market, and funds needs to be taken advantage of. But due to the economic recession, the venture capital industry has been unable to raise the 70-80%. In 2003, over 20 new funds were established; however, over 50% of these were set up by companies from the financial sector or conglomerates (e.g. financial holdings companies, industrial banks), which established the funds with internal investment strategies in mind. Venture funds established by independent venture capitalists totaled less than 1/3 of the total new funds, thereby creating a situation where venture investors’ actions and attitudes are overly conservative.

Since its inception, the venture capital industry has invested an accumulated NT$ 1.7171 billion in 8719 portfolio companies, mainly in the semiconductor, information, telecommunications, electronics, and opto-electronics industries. In 2003, venture investments in the semiconductor industry reached new highs in both amount invested and number of investments, showing that the semiconductor industry is still a favorite of venture investors. The domestic semiconductor industry has become mature after over a decade of growth and development; in recent years, venture funds have turned their attentions from IC production to IC design, particularly in the new applications of digital multimedia and wireless communications. The information and electronics industries were also key industries in the eyes of venture investors. Taiwan’s information and electronics industries are well-regarded globally, and sits in an advantageous position in the global production arena. In recent years, following the trend of globalization, Taiwan’s information and electronics industries’ core competitive value began increasing in terms of value added. An emphasis on product design and the creation of new R&D centers as well as the establishment of global operating centers for total package sales have revitalized these two industries. From this can be seen that the venture industry has always actively been in pursuit of high-growth, large-scale, innovative industries. It is perhaps not too much of a surprise that the path the venture industry has taken over the past two decades has matched that of the domestic technology industry’s.

The Executive Yuan unveiled its “Two Trillion and Twin Star Industries Development Plan” in May 2002. The “two trillion” refers to the semiconductor and flat-panel display industries; these two industries are relatively mature industries, so there are not an abundance of investment opportunities for venture funds here. However, the “twin stars”--the biotech and digital content industries--are new, experiencing explosive growth, and full of potential. They are also heavily promoted by the government and target industries for the further development of the knowledge economy. If the resources and strengths of the government’s relevant departments can be utilized and fully combined with the electronics and information industries, Taiwan is certainly a suitable environment for their development. Therefore, in the future, they are likely to become the new target for venture investment.

In 2003, quite a few biotech venture funds were established; these funds’ sizes were in general larger than electronics venture funds. At the same time, venture funds targeting investment in the “twin stars” or in seed-stage companies can be the beneficiary of investments from the Development Fund. Therefore, these types of funds are likely to increase in the near future.
In order to make Taiwan’s venture capital industry’s investments match up with government-promoted industries, present difficulties such as capital and human resource shortages have to be overcome first. Taiwan’s venture capital industry needs the guidance and support of the government to continue growing healthily, and the government needs venture capital in order for its promoted industries to develop. By working together, technology research institutes and a solid production base can be established, and ultimately, Taiwan’s economic strength can return and rise to the next level.