14th Conference on Pacific Basin Finance, Economics and Accounting
Venture Capital Industry
Development in Taiwan
Thomas M. F. Yeh
Vice Chairman
Council for Economic Planning and Development
Executive Yuan (Cabinet), R.O.C. (Taiwan)
July 14, 2006
1
Content
I.
Introduction to Taiwan’s Venture Capital Industry
II.
Overview of Venture Capital Investing in Taiwan
III. The Role of the Development Fund in the Venture
Capital Industry
IV. The Challenges to Taiwan’s Venture Capital Industry
V.
Outlook and Next Steps
VI. Conclusion
2
I. Introduction to Taiwan’s Venture Capital
Industry
The VC industry has made a substantial contribution to
Taiwan’s industrial restructuring, SME development,
high-tech industry incubation, job creation, and stability
of economic development. It played a key role in
supplying funds to and facilitating collaborations
between high technology companies for the last
several decades. Its impact on the nation's most
significant period of rapid economic boom has been
remarkable.
3
I. Introduction to Taiwan’s Venture Capital
Industry
1. The Current Mode of Operation in Taiwan
(1)The relationship between funds and management
firms is usually dictated by a management contract.
The management firms then are responsible for
pursuing, analyzing, and recommending investment
approach and execution.
(2)Once the investment is made, management firms
are furthermore responsible for post-investment
management and providing managerial and
operational guidance and services to the portfolio
company to help reach the ultimate goal of a
successful exit.
4
I. Introduction to Taiwan’s Venture Capital
Industry
2. The Current Mode of Operation in Taiwan
Source:Taiwan Venture Capital Association
5
II. Overview of Venture Capital
Investing in Taiwan
Management Mode
Entrusted to Management
Company
Self-managed
Entrusted to Other VC Firm
Total
No. of Firms
199
28
4
231
Percentage
86.15%
12.12%
1.73%
100%
Self-managed
12.12%
Entrusted to
other VC
firm
1.73%
Entrusted to
management
company
86.15%
6
I. Introduction to Taiwan’s Venture Capital
Industry: The Evolution of VC in Taiwan
No. of VC firms breaks
through the two hundred mark.
The investment
tax credit for VC firm
shareholders is cancelled.
The Taiwan Venture Capital
Association is set up
Hotung Venture Capital is listed
in Singapore, becoming
Taiwan’s first VC firm to list
overseas
Macronix becomes the first
VC-invested company
approved for type-three listing
The first VC firm, Hong Da,
is set up
VC Developments
Executive Yuan approves placing VC industry
guidance and assistance under jurisdiction of
MOEA
The Development Fund is placed under direct
jurisdiction of the Executive Yuan (Cabinet).
The Development Fund passes the Guidelines for
the Review and Management of Executive Yuan
Development Fund Investment in VC Enterprises
Amendment of Regulations on the Scope and
Guidance of Venture Capital Enterprises to
expand funding channels and ease restrictions on
investment scope and fund utilization
Plans to strengthen the VC industry under the
National Development Plan to be matched by
establishment of an NT$
billion VC fund
(NT$ billion public funds + NT$ billion
Repeal of the Regulations for the
Administration of Venture Capital
Enterprises (MOF)
private funds).
Change from administration to guidance of VC
industry, with issuance of Regulations on the
Scope and Guidance of Venture Capital
Enterprises (MOF)
70
The Development Fund funds and
appoints ICBC to administer the
Third VC Investment Program
The Development Fund and Chiao
Tung Bank respectively provide
NT$ billion and NT$
million
to fund the Second VC Investment Program
The Development Fund and Chiao
Tung Bank respectively provide
NT$
million and NT$
million
to fund the First VC Investment Program
Issuance of Regulations for the Administration
of Venture Capital Enterprises (MOF)
Legal & Regulatory Revisions
and Major Plans & Programs
Mature
Stage
Expansion
Stage7
10
0
60
0
30
0
Startup
Stage
Seed
Stage
30
1
50
0
2001.5 2001.6 2001.10
1985.9 1991.2 1995.3 1997.81998.1
1983.11
1999.5
1984.11
2004.9
2004.2 2004.8
2004.12
I. Introduction to Taiwan’s Venture Capital
Industry:




Seed Stage--The first VC firm was set up(1984).
Startup stage-- the first VC-invested company
approved for type-three listing(1995).
Expansion Stage--The investment tax credit for VC
firm shareholders was cancelled(1999).
Mature Stage--Amendment of Regulations on the
Scope and Guidance of Venture Capital Enterprises
to expand funding channels and ease restrictions on
investment scope and fund utilization(2004).
8
II. Overview of Venture Capital Investing
in Taiwan
1.Taiwan’s first VC fund was established in 1984. Ten
years later, the industry reached the expansion stage
and entered its “golden era”, which lasted five years
until 2000. Between 1995 and 2000, the number of VC
funds grew from 34 to 170 while capital under
management rose from USD$5.8 billion to USD$47.0
billion. At the end of 2005, there were 231 VC funds
with capital under management totaling USD$58.9
billion.
9
II. Overview of Venture Capital Investing
in Taiwan
2.The VC industry has yet to recover from the global
economic recession that hit in 2001. Since then, both
capital raised and the number of new funds established
each year have fallen while performance has also
suffered. Now, five years on, new challenges have
arisen for Taiwan’s VC industry to contend with.
10
II. Overview of Venture Capital Investing
in Taiwan
Cumulative Capital Raised
7000
New Capital Raised
5,735.69 5,884.91
6000
5,338.05
Unit：USD $ Million
4,703.21
5000
3,981.60 4,169.09
4000
3,215.25
3000
2,267.29
2000
1000
941.99
947.96
766.34
187.49
534.12
634.84
397.61
0
1998
1999
2000
2001
2002
2003
2004
Source: Taiwan Venture Capital Association
Fig.1 Taiwan Venture Capital Industry: New Funds in Year
11
151.4
year
2005
II. Overview of Venture Capital Investing
in Taiwan
(Capital)
7,000
(New Investment Amount)
Unit：USD $ Million
6,000
5884.91
5846.68
5508.97
5735.69
(Cumulative Investment Amount)
5,338.05
5,000
4,703.21
3,981.60
4,000
3,215.25
3,000
1,000
3,901.79
5,034.35
4,520.00
4,155.03
2944.2
2267.29
2,000
4,169.09
2024.22
671.22
919.95
957.60
253.24
364.97
514.19
474.74
337.52
0
year
1998
1999
2000
2001
2002
2003
2004
Source: Taiwan Venture Capital Association
Fig.2 Taiwan Venture Capital Industry: amount of investment
12
2005
II. Overview of Venture Capital Investing
in Taiwan
12000
Unit：Number of Investment
(Cumulative Investment)
(New Investment)
9,762
10000
10,295
8,719
7,560
8000
6,957
6,343
6000
4,493
4000
2000
2,994
1,155
1,850
1,499
614
603
1,159
1,063
0
1998
1999
2000
2001
2002
2003
2004
Source: Taiwan Venture Capital Association
Fig.3 Taiwan Venture Capital Industry: number of investment
13
513
2005
year
II. Overview of Venture Capital Investing
in Taiwan
1,200
Seed
Unit：USD$ million
1,000
Start-up
Expansion
Mezzanine
Turnaround
8.49
6.59
156.74
800
220.10
5.16
600
124.82
403.27
0.12
4.82
404.58
400
309.23
314.30
200
62.58
1998
248.11
245.47
174.15
142.76
106.97
74.80
57.54
1999
6.81
90.96
38.61
231.14
169.43
104.67
74.18
0.40
0
142.04
0.25
2000
2001
30.31
15.54
17.53
2002
81.73
93.70
100.82
87.75
2003
38.02
2004
Source: Taiwan Venture Capital Association
Fig.4 Taiwan Venture Capital Industry: Stages of Investment
14
69.82
27.20
2005
II. Overview of Venture Capital
Investing in Taiwan
32.64
1%
952.12
21%
323.52
7%
1148.69
26%
Seed
Start-up
Expansion
Mezzanine
Turnaround
2034.54
45%
Unit：USD$ million
Taiwan Venture Capital Industry: Stages of Investment
15
II. Overview of Venture Capital Investing
in Taiwan
1000
Information
Electronics
Semi-conductor
Telcom
Optieletrical
Bio-Tech
Unit：USD $ Million
800
19.9
95.1
600
21.7
69.3
37.9
131.2
111.9
37.6
180.9
400
103.5
20.5
188.7
198.9
200
24.9
13.06
126.8
125.9
108.2
59.7
110.6
167.8
101.6
62.5
0
1998
86.4
28.0
152.3
1999
41.3
56.5
2000
2001
22.4
2002
119.1
30.2
26.74
59.13
69.3
66.2
28.3
116.6
104.8
43.2
6.8
48.5
64.3
2003
60.3
23.0
2004
Source: Taiwan Venture Capital Association
Fig.5 Taiwan Venture Capital Industry: Industries of Investment
16
22.7
37.74
40.13 18.6
2005
II. Overview of Venture Capital Investing
in Taiwan
642.33
18%
205.4
6%
488.5
14%
Information
606.03
17%
Electronics
Semi-conductor
Telcom
Optieletrical
647.2
19%
Bio-Tech
901.24
26%
Unit：USD$ million
Taiwan Venture Capital Industry: Industries of Investment
17
II. Overview of Venture Capital
Investing in Taiwan
Year
1996
New Funds
1997
14
Growth Rate
1998
40
2000
38
46
32
133% 100.00%
35.71%
21.05%
-30.43%
2003
2004
133.0%
23
19
9
-78.13% 157.14%
27.78%
-17.40%
-52.63%
200%
150%
38
157.1%
100.0%
30
2005
18
7
46
35
32
100%
28
35.7%
25
23
21.1%
14
27.7%
-30.4%
10
7
5
50%
19
18
20
15
2002
2001
28
No. of
Funds
50
45
1999
0%
-17.4%
-78.1%
9
-50%
-52.6%
0
-100%
1996
1997
1998
1999
2000
New funds
18
2001
2002
Growth rate
2003
2004
2005
II. Overview of Venture Capital
Investing in Taiwan
Year
Added Capital
Growth Rate
1996
1997
1998
1999
2000
2001
2002
Unit: NT$100 millions
2003
2004
2005
67.57
171.71
303.01
304.93
246.51
60.31
171.81
204.21
127.90
48.7
60.69%
154.12%
76.47%
0.63%
-19.16%
-75.53%
184.88%
18.86%
-37.37%
-61.9%
NT$100 millions
184.9%
350
200%
154.1%
303.01 304.93
300
150%
250
236.52
76.5%
60.7%
200
100%
204.21
171.71
171.81
150
50%
18.9%
0.6%
127.9
-22.4%
0%
-37.4%
100
67.57
60.31
48.7
50
-50%
-74.5%
-61.9% -100%
0
1996
1997
1998
1999
2000
Added Capital
19
2001
2002
Growth rate
2003
2004
2005
II. Overview of Venture Capital
Investing in Taiwan
Units: NT$100 millions; No. of investments
Year
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
No. of Investments
471
951
1155
1499
1850
614
603
1159
1063
513
Amount of
Investment
88.1
176.0
215.9
295.9
308.0
81.5
117.4
165.4
152.7
108.57
2000
350
300
215.91
1400
1200
250
176
200
1000
117.4
800
88.13
81.46
600
150
165.4
152.71
108.57
100
400
50
20
05
f
20
04
03
02
603 1159 1063 1300
20
No. of investment
20
01
20
00
20
99
19
98
19
19
96
951 1155 1499 1850 614
97
471
0
20
200
19
Number of
Investments
308.03
1600
Amount of investment
0
Amount of Investment
(NT$100 millions)
295.92
1800
II. Overview of Venture Capital
Investing in Taiwan
Dividend
in %
Historical Analysis of the Earnings Status of Taiwan’s VC
Investment (1990-2004)
25
20
20
20.6
18.1
14.9
15
13.3
15.7
13.3
10
3
5
2.5
0.4
5.6
3
0.5
1.2
0
-0.9
90'
91'
92'
93'
94'
95'
96'
97'
98'
99'
00'
01'
02'
03'
04'
Year
-5
21
II. Overview of Venture Capital
Investing in Taiwan
Status of Stock Listing of VC-backed Companies in Taiwan (Whole Stock Market)
Taiwan Stock Exchange
(TSE)
GreTai Securities Market
(GSM/OTC)
Total
No. of companies listed
697
466
1,163
No. of VC-backed companies listed
225
171
396
VC-backed companies as ratio of all companies listed
32.28%
36.7%
34.05%
No. of new listings in 2004
38
88
126
No. of VC-backed companies newly listed in 2004
15
24
39
VC-backed companies as ratio of new listings in 2004
39.47%
27.27%
31.00%
Status of Stock Listing of VC-backed Companies in Taiwan (Technology Stocks)
Taiwan Stock Exchange
(TSE)
GreTai Securities Market
(GSM/OTC)
Total
No. of technology companies listed
309
340
649
No. of VC-backed technology companies listed
176
157
333
57.00%
46.00%
51.30%
No. of technology companies newly listed in 2004
28
65
93
No. of VC-backed technology companies newly listed in 2004
15
19
34
VC-backed companies as ratio of newly listed technology companies
in 2004
53.57%
29.23%
36.56%
VC-backed technology companies as ratio of all technology
companies listed
22
II. Overview of Venture Capital
Investing in Taiwan
Contribution of VC Investment to Employment in Taiwan
Item
No. of People
9,874,000
No. of persons employed in Taiwan in 2005
No. of persons employed by VC-backed listed companies (2004)
Persons employed by VC-backed listed companies as ratio of Taiwan’s employed population
338,528
3.43%
2,865,240
No. of persons employed in industry (2004)
Persons employed by VC-backed listed companies as ratio of Taiwan’s total industrial
employment
11.81%
Contribution of VC Investment to Taiwan’s GDP
Amount
(NT$ billions)
Item
165
GDP created by VC-backed listed companies (2004)
Taiwan’s GDP (2004)
9,862.8
GDP created by VC-backed listed companies as ratio of Taiwan’s GDP (2004)
1.673%
23
Sources: Own research; DGBAS; Taiwan Economic Journal Database.
III. The Role of the Development Fund in the
Venture Capital Industry
1. Purpose of the Development Fund
(1)The Executive Yuan (Cabinet) Development Fund
was set up in 1973 and is one of the tools for
carrying out industrial policies in
Taiwan.
(2) Development Fund‘s principle goals are to
facilitate industrial development and to speed up
the modernization of Taiwan’s industrial sector.
(3) Development Fund is also intended to play a role
in accelerating national economic development
and strengthening national competitiveness.
24
III. The Role of the Development Fund in the
Venture Capital Industry
2. The Functions of the Fund
(1) Providing funding for major enterprises or projects
targeted at improving industry at the national level.
(2) Extending loans for small and medium-sized
enterprises in conformity with government policies.
(3) Introducing advanced technology, strengthening
research and development, enhancing manpower
training, improving pollution control, and reinforcing
economic development.
(4) Carrying out other missions specifically assigned or
approved by the Executive Yuan.
25
III. The Role of the Development Fund in
the Venture Capital Industry
3. The Development Fund’s Investment in Venture
Capital Enterprises
(1)Goals
The goals of investing in venture capital enterprises
are to facilitate industrial development and to speed
up the modernization of Taiwan’s industrial sector
as a whole. By working with venture capital firms,
the Development Fund can attract more investment
from private investors and thus achieve its objectives
much more effectively.
26
III. The Role of the Development Fund in
the Venture Capital Industry
Overseas high-tech
Investment
companies
Investment
42 domestic VC firms
Investment
Indirect
investment
Direct investment in line
with policy direction
Technology
transfer
43 domestic and overseas hightech companies
Cooperation
Development
Fund
10 overseas VC firms
(Indirect investment)
Fund of Fund
27
III. The Role of the Development Fund in
the Venture Capital Industry
4,500
4,000
Unit: USD$ Million
3,462.9
(53)
3,500
3,000
78.99
(44)
2,500
1,868.1
(38)
2,000
1,500
1,000
500
0
155.4
(4)
Series 1
1990
466.3
(12)
310.9
(8)
155.4 Series 2
(4)
Series 1
1997
804.9
(19)
1,426.6
(31)
Series 3
Series 3
1,989.3
1,401.7
2,996.5
Series 3
(32)
(26)
(41)
310.9 Series 3 310.9
310.9
310.9
(8)
(8)
(8)
(8)
155.4 Series 2 155.4 Series 2 155.4 Series 2 155.4 Series 2
(4) Series 1
(4)
(4)
(4)
Series 1
Series 1
Series 1
2001
2002
2003
2005
Note 1: VC investment Series 1 started from Sep. 17, 1985; Series 2 started from Feb. 26, 1991; Series 3 started from Jan. 8, 1998.
Note 2: “Challenge 2008”is included in Series 3. As of the end of Dec. 31, 2005 USD$266.4 million had been approved for 26 cases.
Note 3: Number of investment showed in ().
Note 4: 6 Cases are excluded from Series 3 because of overdue applications.
Fig.6 Cumulative Numbers and Funds Investment in VC approved by
the Development Fund28
III. The Role of the Development Fund in
the Venture Capital Industry
400
346. 3
(53)
Unit：USD$ Million
299. 7
(41)
300
225. 2
(39)
263. 9
(52)
200
100
15. 5
(4)
11. 9
(4)
31. 1
(8)
26. 8
(8)
0
series1
series2
Accumulated approved investments
series3
Accumulated actual investments
total
Notel : VC investment series 1 started at 1985/9/17;series 2 started at 1991/2/26;series 3 started at 1998/1/8
Note2 : numbers of investment show in ( )
Fig.7 Series of The DF Investment in VC
29
III. The Role of the Development Fund in
the Venture Capital Industry
300
Unit：USD$ Million
263.9 240.3
62.9
225.2
250
160
200
8.0
150
100
50
36.5
53.5
21.5
11.9
0
series1
15.0
187.4
33.3
152.0
26.8
20.2
series2
Initial investment cost
series3
Total
equity owned by DF
Returned capital
Notel : VC investment series 1 started at 1985/9/17;series 2 started at 1991/2/26;series 3 started at 1998/1/8
Note2 : numbers of investment show in ( )
Fig.8 The Performance of The DF Investment in VC by Series
30
III. The Role of the Development Fund in
the Venture Capital Industry
3. The Development Fund’s Investment in
Venture Capital Enterprises
(2) National Development Plan
A sum of USD$3.1 billion is to be raised from the
private sector and the Development Fund on a 70/30
basis for injection into venture funds. Its purpose is
to build more venture capital funds and funnel
increased investment into emerging industries. This
will help achieve the objectives of expediting the
nation’s economic development and strengthening
its competitiveness.
31
2400
120
100
2100
Unit：USD$ Million
100
81
1800
71
80
1500
61
51
1200
60
42
900
33
40
24
600
15
300
0
Cumulative Investment Amount
Cumulative Investment from Private Sector
Number of Investment
20
8
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
62
124
218
311
404
497
606
715
824
933
230
407
507
724
945
1163
1414
1669
1924
2176
8
15
24
33
42
51
61
71
81
100
Fig.9 Development Fund Investment in VC: National Development
Plan
32
0
Unit：number of investments
III. The Role of the Development Fund in
the Venture Capital Industry
IV. The Challenges to Taiwan’s Venture
Capital Industry
1. Shortage of Capital
Venture funds’s performance has been badly
affected by the generally poor economic conditions
prevailing over the past several years. With less and
less capital available, fund raising became more and
more difficult, putting a heavy drag on venture funds’
performance. This created a vicious cycle that
hamstrung the venture investing industry.
33
IV. The Challenges to Taiwan’s Venture
Capital Industry
2. Shortage of Investment Cases
The main drivers responsible for the boom in the
venture capital industry toward the end of the 20th
century were the information technology and
semiconductor industries. Both have now reached
maturity and are facing their own challenges. On the
other hand, the emerging industries, highly touted
biotechnology and digital content industries, are still
in the initial stage of development in Taiwan. So they
have somewhat disappointed early investors.
34
IV. The Challenges to the Venture Capital
Industry
3. Difficulties of Exit
The stock markets around the world performed
poorly between 2000 and 2004. Without good
opportunities for exit, money was locked in and could
not be used for new investments, compounding new
investors’ growing reluctance to pump in fresh
funds.
35
V. Outlook and Next Steps
1.Widen the Varieties and Broaden the Scope of
Venture Investment
Today, Taiwan’s rapidly growing industries are
much more diversified, and the varieties of financial
markets and products increase on a daily basis.
Venture funds have to adjust to the times and
reassess new investment strategies and directions.
36
V. Outlook and Next Steps
2. Set up a Platform for Promoting Investment
Exchanges
Every year Taiwan’s government and private sector
jointly holds large-scale trade shows and exhibitions
for various industries, they have been used mainly
as a networking forum for the industry members. An
effective investment matchmaking platform needs to
be very well managed and kept in focus.
37
V. Outlook and Next Steps
3. Enforce Good Corporate Governance Practices and
Increase the Responsibilities of Company Directors
and Supervisors
Implementing good corporate governance practices
and increasing the responsibility of company
directors and supervisors would go a long way in
safeguarding the stock market from unexpected such
shocks and restoring investor confidence.
38
V. Outlook and Next Steps
4. Expand Investment Horizons beyond Home
Shores
The keys to successful globalization of VC
investment are as follows:
(1) Cooperating with large-scale international
venture funds.
(2) Holding or attending international venture
capital events.
(3) Joining global venture capital organizations.
39
V. Outlook and Next Steps
5. Combine Smaller Entities into Bigger ones to
Achieve Economy of Scale
Small and mid-sized venture funds should seek
merger opportunities with larger funds in order to
achieve economy of scale. Joint ventures and
alliances are also ways to combine smaller players
into bigger ones. Once economy of scale is
achieved, good talent will come naturally, and
venture funds can compete globally.
40
VI. Conclusion
1.Taiwan’s venture capital industry has developed
successfully due to its close ties to the rapid rise of
the domestic high-tech industry and sound
government policies. However, the weakening of
the global economy and an inability to adapt to
changing times have put a brake on the VC
industry’s development and caused it to languish
in an extended period of correction.
41
VI. Conclusion
2.To break out of their current torpor, Taiwan’s
venture funds need to take on new areas and
markets. Moreover, venture funds need to move
towards diversification and globalization, and to
develop in the areas of private equity,
reorganizations, and mergers and acquisitions.
3.With new directions for progress and building on its
earlier success, the venture capital industry should
be able to regain its former glory and shine even
more brightly in the near future.
42
Thank You for Your Attention!
43