Taiwan Startups Need to Break the Shackles of Confucius

Taiwan Startups Need to Break the Shackles of Confucius
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Taiwanese entrepreneurs and investors must break from Confucian tradition if the island is to take the mantle as the Silicon Valley of Asia.

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This article has been updated from an earlier edition.

Taiwanese entrepreneurs and investors must break from Confucian tradition if the island is to take the mantle as the Silicon Valley of Asia.

That was a key takeaway from a panel discussion in Taipei earlier this month featuring well-known Silicon Valley angel investor Dave McClure alongside local players from Horizons Ventures and WI Harper Group.

Taiwan has a “pretty great” combination of low-cost engineering, English speaking talent and familiarity with both the US and Chinese markets, says McClure, whose fund 500 Startups has invested in several Taiwanese companies among its massive global portfolio.

Yet, notwithstanding more than a handful of exceptions – Eztable, Livehouse, iChef, Fandora, Gogoro and KKday to name a few – the widely held view is that Taipei’s fledgling startup scene has yet to take flight.

The Culpan Equation

Bloomberg columnist Tim Culpan, who chaired the event, has a theory explaining whether startups are likely to thrive in any market. It is based on the concepts of fear of failure (FOFA) and fear of missing out (FOMO).

Culpan says in a recent article, “If FOMO is greater than FOFA then startups will mushroom. If the reverse is true, where FOFA is greater than FOMO, then startups won’t sprout.”

“If you look at Silicon Valley, where venture capitalists sit on billions of dollars to throw at the next Facebook, Twitter or Uber, you’ll note that one of the most powerful yet little-discussed forces is FOMO,” Culpan wrote.

Culpan, a veteran Asia tech reporter, told the audience that while these fears have been a problem in Taiwan, the dynamic is changing.

“I would argue that we’ve seen FOMO rising and FOFA falling,” Culpan says. “I believe that what we’re seeing in Taiwan recently is that the fear of missing out is becoming a big thing.”

Horizons Ventures advisor Phil Chen, who is based in Hong Kong and travels regularly to Taipei, explains how FOMO, on the part of the investor, plays out in Taiwan.

In Silicon Valley would-be investors have a fear “the next big idea is being developed in some garage,” he says. Corporates in Taiwan, however, have “almost zero” of the same fear.

“When you are in a big company [in Taiwan], you do not fear the start-up.”

Fear of failure and Confucius

On the other side of the Culpan equation is FOFA.

Chen says that while fear of failure is higher in Japan and Korea, it is still an issue in Taiwan. He says the problem is tied to Confucian culture, which is strong in each of those countries and seems to limit the attitude and self-belief that is needed to succeed in the startup game.

“There is not pure meritocracy. It is not the best idea wins out,” he says. “The most senior person has the strongest voice in the room.”

Taipei-based WI Harper Group’s Yvonne Chen says Confucian-style education – notorious for fostering passive students – leaves talented Taiwanese entrepreneurs “afraid to show off.”

“I ask them, ‘Can you be more aggressive?’”

Whether it is a lack of aggression, FOFA, professional and financial conservatism – people leaning towards safer career and savings options – or a combination of these things, ultimately what results is an entrepreneur unable to create a narrative that convinces investors to part with their cash.

“They have the technical chops, the question is: do they have that belief; do they have that courage; do they have that confidence? Oftentimes they don’t,” Phil Chen says. “Because they don’t, [they] are unable to create that FOMO.”

Whilst some aspects of Confucian culture appear to be weighing on Taiwan, they may not be irreversibly entrenched in the psyche of all Taiwanese. In addition to the numerous successful locals going against the grain, there are also many Taiwanese successfully starting companies in Silicon Valley – Horizons Ventures has invested in two in the past few months.

“A lot of it has to do the environment," Chen says. “When you take the Taiwanese entrepreneur out [of Taiwan], and put them in the Valley, they thrive.”

McClure points to Taiwan-born Steve Chen, who previously worked for PayPal, and co-founded YouTube.

“I didn’t feel any lack of ambition there. He was pretty crazy-ambitious about where YouTube went,” says McClure.

Lessons from the US and Israel

The difference in market size means comparisons with the US or China are unfair, McClure says. Though he does point to some lessons that the Taiwanese government could learn from the flourishing startup industries in Silicon Valley and smaller countries like Israel. He puts impetus on the need for growth on the investment side.

When investors know there is not a lot of capital in the market, their leverage over entrepreneurs can be “pretty substantial,” says McClure.

This situation is “really different” in places like Beijing and the US where startups can go elsewhere to raise capital.

“That is a real fear, certainly in the US,” he says.

He pointed out that there is a role for government to play in helping investors. It is often forgotten that a lot of subsidized capital helped drive growth in the early years of Silicon Valley.

“A lot of it comes down to the very, very basic elements of providing capital, and providing capital to fund managers who provide capital.”

He describes the creation of funder funds – entities which allow smaller and early-stage fund managers to get started in the industry – as “essential.”

“Not just late-stage capital and not just Series-B and private equity.”

Also important are liquidity vehicles – which allow new avenues for investors to recapitalize and also exit.

“One of the biggest challenges for angel investors or early seed-stage investors is that it is a very long cycle time until you get exits – typically between five to ten years – for all but the most patient of investors that is very challenging,” says McClure. “A lot of other asset classes have a five year liquidity cycle or less.”

McClure had another piece of advice, while masked as a joke, perhaps best captures the key message for Taiwan to free itself from the shackles of Confucius.

The government, he says, should start a “break the rules campaign.”

Disclosure: 500 Startups is an investor in The News Lens.

Correction (Nov. 14, 2016):

The following quote from Tim Culpan was previously incorrect.

It should read as follows: Culpan says in a recent article, “If FOMO is greater than FOFA then startups will mushroom. If the reverse is true, where FOFA is greater than FOMO, then startups won’t sprout.”

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