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Taipei startups fail to scale while the city turns into an innovation hub, study finds
Taipei has moved from being an electronics assembly to a high-tech innovation hub in the last two generations but only few tech startups were able to scale up, according to a study by Endeavor Insights conducted with Techstars recently.
The study, titled Scaling Up Tech in the City of Electronics, by Lili Torok and Rhett Morris, noted that the Taipei entrepreneurship community has evolved over the past 40 years and it now boasts having highly qualified talent pool, a large number of boomerang entrepreneurs, and a prevalence of high-tech firms.
"Despite positive trends in recent years, the Taipei tech entrepreneurship community faces significant barriers to scaling... Taipei needs more companies that scale, like many local entrepreneurship communities do," the study noted.
The study said that tech-enabled companies in the city have created about 23,000 jobs, but over 80 percent of these came from a small minority of companies with 50 or more employees. "In the past 5 years, less than 10 percent of tech-enabled companies were able to achieve this level of scale," the study said.
The findings are based on over 40 in-depth interviews with tech entrepreneurs in Taipei, interviews with more than 10 investors and other stakeholders in the entrepreneurship community, as well as secondary data on the work histories of more than 200 tech founders, and more than 150 investment deals. The study was conducted in 2019 and published in September last year.
Why this study is important
Techstars, a Venture Capital and Private Equity, opened its office in Taipei back in 2019 mainly to be a startup community builder. In an email reply to our question, Oko Davaasuren, Techstars Sr. Director said the quantitative research was done to try to understand the dynamics, connections and relationship of the current state of the community.
"While many communities around the world want to develop their startup ecosystem they end up focusing on the wrong approach. The wrong question is: How do we be more like Silicon Valley? The right questions are: Where are we now, and how do we get where we need to go? What seems to be working already, and what's not working? What are startups in need of today, and how can I help them?" Davaasuren said.
Why Taipei startups aren't able to scale
Two-thirds of the interviewed tech founders indicated that their greatest challenge was finding qualified managers. The study said that one reason for the unmet demand for managerial talent is that the founders themselves are considerably more experienced in Science, Technology, Engineering, or Math STEM fields than they are in management.
The study also said that while networks are considered to be the most important factor of success, with 74 percent of interviewed founders considered networks to be essential to succeeding, entrepreneurship community in Taipei is highly centralized around a small number of influential government programs.
To be sure, seventy percent of 196 startup founders surveyed were connected to via entrepreneurship support organization such as an incubator or an accelerator, and a portfolio company. Ninety-seven of these came from one of four organizations: Taiwan Startup Stadium; Appworks; Taiwan Tech Arena; and National Chiao Tung University (NCTU). All four of these organizations are backed by the Taiwanese government.
"Over time, however, the overwhelming influence of government-funded entrepreneurship support programs crowds out other actors. The network's concentration around a small number of extremely influential organizations may be exposing the network to risks of policy change and may also be preventing entrepreneurial leaders from emerging," the study noted.
Trust Issues
Entrepreneur-to-entrepreneur connections are measurably linked to improved company performance, and in most emerging markets that Endeavor has studied, they make up 20 to 30 percent of connections.
In the case of Taipei, entrepreneur-to-entrepreneur connections happen less than 5 percent of connections, "which makes them extremely rare - not only relative to other connection types, but also relative to the size of the sector."
This rare case can be traced to the low levels of community giving in the entrepreneurship community. The study showed that only one in six respondents believed that accomplished entrepreneurs should help others without attaching any conditions.
"As one interviewee noted, business culture is hierarchical and typically transactional. Successful C-level executives and founders rarely attend the same events as more junior founders who are just starting up," the study noted.
Low government support for later-stage companies
The study also highlighted the overwhelming majority of existing government support initiatives that are focused on idea-stage and early stage companies, and not on scaling companies.
Endeavor's international comparison showed more mature entrepreneurship communities like Japan, South Korea, Singapore, and India tend to have a higher proportion of late-stage support.
"Decision makers in the public sector need to shift resources to support scaling companies that have a potential to employ significant numbers of people in the future," the study noted.
As described on their website, Endeavor Insight seeks to deepen understanding of how high-impact entrepreneurs and scaleups contribute to job creation and long-term economic growth in order to educate key constituencies, such as policy makers. In addition, Endeavor Insight seeks to serve as a knowledge center for high-impact entrepreneurs, VCs and others in order to provide useful information and tools that assist entrepreneurs as they grow their businesses.
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