This post is in continuation of the yesterday’s article on Taiwan’s startup ecosystem.

‘Face’ and the island mentality
Entrepreneurs and investors alike note a false sense of security in Taiwan and the tendency to look inward toward its own market. Indeed, it’s easy to be myopic in a country where a two hour journey from Taipei to Kaohsiung is considered too long for a day trip, but entrepreneurs need to keep their eyes on global competitors, not for fear of them stealing ideas, but to understand whether they indeed have meaningful markets and differentiation, and whether they’re holding themselves to world-class standards of both effort and progress.

“You can’t compare yourself to competitors in Taiwan,” says Yen. In spite of Pinkoi’s growth and considerable traction, “compared to Etsy, we’re doing poorly”. Experienced investors come with the same high standards. “A good investor will be very harsh on you. Our investors compare our shopping cart drop rate to Amazon’s. They’re comparing us to Amazon!,” he adds.

Also Read: Taiwan’s ALPHA Camp launches ‘Million Dollar Scholarship Program’

At GREE Ventures, this idea is built into its assessment criteria for funding targets in Southeast Asia. Alan Hsu of GREE Ventures mentioned that one of the criteria for investment targets in Taiwan is evidence of performance in Taiwan plus one other country. “Typically, we need to see some kind of traction, proof that the business model would work in some other market,” he says. Value must be shown to cross borders and grow. This is a tricky task, no doubt. Southeast Asian countries are not homogeneous, and if creating a business model that works in one country is a tall order, then creating one that works with a competitive advantage in two is exceptionally difficult.

For this to occur, stakeholders have to be willing to be tough but fair, and founders willing to hear harsh feedback. It has been noted that in Taiwan, founders with high education and professional credentials often come with “healthy” egos, which makes harsh, candid observations challenging to communicate. “If Taiwan is going to do better, we need to do our part. Taiwan has to get away from a ‘face’ issue and foster honest feedback,” says Mark Hsu. Ego may provide the courage to attempt a startup and get on stage for demo day, but when in the process of seeking your company’s business model, partners, and customers, entrepreneurs have to navigate reality, and be especially attuned to and dispassionate about feedback regarding any deviations from that reality, as those deviations will be punished severely when money, time, and energy is on the line. In other words, the sooner Taiwanese entrepreneurs can be inoculated to direct feedback without sugar-coating, the sooner they get on track to positive outcomes.

Investors in Taiwan
In spite of what was mentioned above, there is considerably more money available now than there was only a few years ago. Peter Yen notes, “Angel money used to be less than US$30,000. It’s totally different now. Now, in Taiwan, you can get roughly US$500,000 easily.”

In spite of this, investors are still risk averse for a couple of reasons. They may not be able to evaluate the potential of newer technology companies accurately and there is a shortage of good opportunities. Heistermann notes, “Investors still have the reputation of being IPO investors, Take no risk, act like a bank, but invest before a company has an IPO. The book of the VCs is still totally risk averse.” Millions are available to companies on track for exits, whereas, with the exception of a very few funds, little money is available in smaller amounts for companies with business models showing promise, but without yet certainty or scale.

Also Read: Taiwan’s on the startup map, but it needs tough love: Part 1

The common complaint is that of the companies going to IPO, there are too few, and of the smaller companies, the teams and skills are not where they need to be to inspire confidence and be added to a portfolio. And so we’ve got this chicken and egg scenario — investors don’t see any good companies and promising entrepreneurs have difficulty getting local funding, and so instead go overseas for their funding, specifically to the Valley.

Taiwan’s teams
Many professional investors are looking for teams with disruptive potential. They have faith and optimism, but feel the investment targets are slim.

Innovators are not copycat and lifestyle entrepreneurs, those that transpose already-successful business models into the ‘new’ market of Taiwan or that create a surf shop that funds their lifestyle. Both can be profitable and admirable, but don’t provide the potential scale venture backers need to justify having them in their portfolios.

The word ‘startup’ is sexy these days and gets thrown around quite a bit. You can even dress like a startup guy. But the truest definition of a startup is Steve Blank’s: an organisation searching for a business model. To be simplistic, an organisation searching for something of demonstrated value differentiated from existing products, and can produce and distribute it to a sufficient number of customers at a premium. Something of demonstrated value to a customer is a good starting point.

In Taiwan, enthusiasm to prove the value of the product should replace any fear of the idea being stolen. “You still need to have proof of concept, and validate, validate, validate,” says Heistermann. The teams need to confirm value and work forward from that promising situation. Teams need to communicate the value they can deliver to users, and at scale. And as mentioned before, Taiwan-wide is not considered at scale. How does the value transcend markets demarcated by borders and oceans? Another aspect that some investors look for is English proficiency among the team, since it reduces a significant point of friction if expansion into other markets is planned.

So here is the plateau-breaking recipe: the ability to solicit, deliver, and tolerate harsh feedback and failures without losing face, more attention on active investing in new technology companies, and well-oriented teams that focus on value, traction, and multiple-markets right from the start.

Taiwan has gained international attention. It’s not front-of-mind, but it’s on the map, and it’s there because of huge amounts of effort put forth by those setting up companies, attending local and international incubators, creating mixers and spreading the word internationally and on the island itself. It would be nice to blend the talents of the experienced entrepreneurs with the new technology entrepreneurs in order to hone the skills of the willing new generation.

This is where the company owners of Taiwan can actively influence the newcomers and support the compounding, which is still in its initial stages. The cavalry of Taiwanese-talent-gone-overseas isn’t coming from Silicon Valley, China, and elsewhere any time soon, and probably not until after a gargantuan exit, or at least after a few more very high profile investments. The guidance and experience of those currently on the island who have walked the path already is invaluable at this stage, and it can intersect with the growing enthusiasm on the island for starting companies.

Starting an innovative company in Taiwan without seasoned mentors and making it viable on the island and in other markets can be like navigating a labyrinth in the dark blindfolded. Guiding teams to move past the ‘face’ issue of delivering and receiving uncomfortable feedback that grounds their efforts to reality, and orienting them in such a way as to maximise their chances of success is the next best thing to having a deus ex machina of established Taiwanese business people working overseas come back to inspire. In fact, it’s exactly these efforts that Mark Hsu spoke of in his post quoted above, along with a faith that good technique and enough iterations will lead to progressively better outcomes that could spark an energetic spree of creative and innovative technology companies to spring from an island that has the talent, the work ethic, and large, established technology organisations to generate it.

The views expressed are of the author, and e27 may not necessarily subscribe to them. 
e27 invites members from Asia’s tech industry and startup community to share their honest opinions and expert knowledge with our readers. If you are interested to share your point of view, please send us an email to writers[at]e27[dot]co.

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