86 PERSPECTIVES ON BUSINESS AND ECONOMICS | VOL 43 | 2025 ic policies and China–US trade tensions constrain momentum (Hung & Kao, 2024). The government recognizes the need to stimulate the start-up ecosystem to attract funders, especially compared to the other Asian Tigers. Investment can come through VC, angel funding, or direct governmental initiatives. However, an analysis of Taiwan’s innovation history and its current efforts illustrates three key issues: poor coordination among government agencies and restrictive legislation deterring investors; a widening funding gap hindering start-up growth; and increasing global isolation across cultural, economic, and social dimensions. The rise of innovation and VC in Taiwan VC globalization began with a few pioneering American VC and private equity (PE) firms establishing international operations in the late 1970s (Kenney et al., 2004). Many of these initial investments prioritized Europe due to its infrastructure and talent, but scarce opportunities there soon drove expansion to the Asia–Pacific region, particularly by US west coast firms. Taiwan actively pursued VC models globally, motivated by the tight control of seven domestic banks controlling 90% of Taiwanese domestic deposits in 1980, which heavily restricted loans for high-tech small and medium-sized enterprises, forcing those enterprises to turn to an unregulated gray market with higher risks (Klingler-Vidra, 2018). In 1981, top government officials visited Silicon Valley to study the unique market factors that drove US innovation. They concluded that the Taiwanese government must directly advance innovation and entrepreneurship. This trip led to the enduring Silicon Valley–Hsinchu Park connection, which continues to nurture the transfer of institutional capital and market knowledge (Klingler-Vidra, 2018). Over the next several years, investors flocked to Taiwan. One of the most successful early entrants was San Francisco–based Hambrecht and Quist, which targeted Taiwan in the mid-1980s, with others following suit over the next decade (Pollack, 1985). These investments sparked rapid growth of Asian VC firms targeting Greater China—mainland China, Hong Kong, Taiwan, Macau, and the Chinese community of Silicon Valley (Kenney et al., 2004). The Asian VC pool increased from US$9.9B in 1988 to US$26.2B in 1993, a 21.5% annual growth rate (Pandey & Jang, 1996). Taiwan welcomed VC to enhance its product technology and boost global competitiveness (Kenney et al., 2004). The government initially offered comprehensive tax incentives, financial assistance, access to foreign technologies, and expertise. However, recognizing their own risk-averse culture (discussed later), officials maintained a conservative 20% tax incentive as their primary VC support—a tried and true approach (Klingler-Vidra, 2018), seeking to avoid large financial commitments and prevent businesses becoming reliant on public funding. Thus, a mismatch between VC’s high-risk nature and Taiwan’s cautious government contribution was introduced, creating tension (discussed later). Although VC offered high potential, Taiwan’s strong original equipment manufacturing sector, which produced low-cost devices for brand-name companies, generated significant value even from its downstream position in the supply chain (Tan & Chia, 2016). Taiwan subsequently invested heavily in microchip research and development during the 1980s, enabling the semiconductor industry to flourish and establishing Taiwan as an indispensable market leader (BER Staff, 2020). The Six-Year National Development Plan of 1991 was another policy initiative significant in its prioritization of economic liberalization by promoting private sector growth beyond 1980s levels and nurturing the investment environment by improving laws and regulations (Council for Economic Planning and Development, 2007). However, during the 2000s, venture capitalists expressed growing dissatisfaction with the stringent regulations governing VC in Taiwan. At the 2004 Taiwan Venture Forum, Paul Wang, chair of the Taiwan Venture Capital Association (TVCA), discussed restrictions on investments from financial institutions along with the elimination of the 20% tax incentive that were harming the industry (Huang, 2004). Rather than encouraging a balanced approach that included robust VC development, Taiwan seemed content to continue relying primarily on its strengths in hardware manufacturing for economic growth. More recently, according to Startup Island TAIWAN (2021), many Taiwanese start-ups have brought new technologies to applications in established manufacturing industries, with over 50% of their investments coming from corporations or corporate VC, reinforcing conservative business approaches among start-ups. These developments have led to Taiwan lagging the other three Asian Tigers. Taiwan’s hardware- focused GDP growth decreased from 6.5% (1991– 2000) to 4.5% (2001–2010) to 3.7% (2011–2020), a troubling trend for its semiconductor-dependent economy (IMF, 2024d). Even more concerning,
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