Since Taiwan's first venture fund was established in 1984, the main driving force behind the steady flow of venture capital into early stage technology companies has been sound government policy. Two such policies that succeeded in stimulating capital flow to cash-strapped technology companies were a) the 20% investment tax credit incentive for first-time investors in venture funds (rewarded upon actual investment by venture funds in strategic high technology industries) and b) regulations restricting venture funds from investing in publicly traded securities. In the early 1980s, the government also set up a seed fund to invest in venture funds and help the industry get off the ground. Therefore, the government played a vital role in not only the development of the venture capital industry, but the high technology industry as well.

By raising large amounts of capital and bringing it to bear on investment in high technology companies, venture funds have created an effective medium for putting idle cash to work in high technology industries. This infusion of capital investment is a blessing for many cash-starved technology startups, and is instrumental in the continued growth and development of Taiwan's high technology industries. Over the past two decades, Taiwan’s venture funds have invested in over 3,000 technology companies and successfully helped the majority to either go public on domestic and foreign markets, or be acquired.

The domination of small and medium enterprises (SMEs) in Taiwan combined with the absence of large conglomerates seeking vertical integration have allowed small and medium technology companies to thrive in a highly segmented market space.

At the same time, the government has made it a priority to keep high technology industry-related policies relevant and current. The National Industrial Technology Research Institute (ITRI) was established by the government as a center for high technology R&D and the development of human resources. In addition, the Hsinchu Science and Technology Park serves as a base for nurturing high technology companies with great growth potential. The steady growth of Taiwan’s capital market and lowered application barriers for small and medium technology companies seeking to list on the Taiwan Stock Exchange or the Over-The-Counter Securities Exchange also contribute to making high technology investments an attractive prospect. Beyond the simple infusion of capital, venture funds provide early stage technology companies and entrepreneurs with an excellent environment for growth, development, and expansion. Therefore, it can be said that the development of Taiwan’s technology industry can be attributed to three entities: the venture capital industry, the ITRI, and the Hsinchu Science and Technology Park.

Taiwan’s venture capital industry is the third most active venture capital market in the world, ranking behind the US and Israel. Many national governments, including those of Japan, Korea, Malaysia, Thailand, Singapore, Australia, New Zealand, Canada, Israel, Germany, Switzerland, France, and China have expressed a high level of interest in Taiwan’s successful venture capital model. The government-led development of Taiwan’s venture capital industry has been the subject of much study and discussion in many Asia Pacific nations seeking to develop their own venture capital industries through incentive systems. In the aftermath of the Asian Economic Crisis of 1997, Taiwan's SMEs have survived and built a stronger foundation for growth. A large part of the credit for the survival of SMEs belongs to venture funds; therefore, the development and methodology of Taiwan’s venture capital industry have become a subject of study and imitation.

However, the venture capital industry has stagnated since 2000, a state which has its roots in various factors. First, when China's economy began growing at an exponential rate in the 1990s, Taiwan's venture investors, banned from investing in Chinese companies, had to shift capital into overseas venture funds that then invested in Chinese companies. As global investors increasingly set their sights on the Chinese market, Taiwan's venture funds are hampered by the government's politically-based economic policies. Second, the global venture capital industry is still recovering from the bursting of the dot-com bubble in 2001, and many are still performing poorly. Other contributing factors include the government's revision of investment policies and the slowly rebounding global economy, which have a direct effect on fundraising.

Since coming to power in 2000, the DPP government has cultivated an environment of political instability and ethnic divide, resulting in China-unfriendly economic policies that essentially destroy the ability of domestic investors to stay competitive in the global market. The instability and a spate of corruption indictments involving senior government officials and the president's family members have resulted in economic stagnation and plummeting stock prices and investor confidence, with no end in sight. Consequently, Taiwan's venture capital industry is facing its worst crisis yet, and funds have no choice but to restructure and alter investment strategies if they wish to stay alive.