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Should Taiwan’s stock market regulator take profits from listed companies and banks to fund startups?
A move by Taiwan’s securities regulator to set up an angel investment fund has drawn criticism from within the startup community.
In early June, the Financial Supervisory Commission (FSC) initiated a series of meetings with banks, insurance companies and investment firms to build support for Taiwan’s startup industry.
FSC chairperson Ding Kung-wha (丁克華), who took office in May, has proposed several new policies, including supporting companies that fund startups, promoting e-commerce, encouraging venture capital and setting up a new angel fund. Among the policies, the angel fund proposal has captured the most attention and generated controversy in the startup community.
The FSC wants to use 2% of the after-tax earnings from listed companies in Taiwan to set up the fund. However, it does not plan to force companies to participate. In 2015, the net profit of all listed companies was NT$18.3 trillion (US$567 billion), which scales the angel funds to about NT$400 billion.
Chang Li-chen (張麗真), deputy director of the Security and Futures Bureau, said the government was also looking to build confidence by involving the finance industry before expanding the plan to the Taiwan Stock Exchange or Taipei Exchange.
Jenny Lee (李滿治), director-general at the Insurance Bureau, said many finance companies have agreed to cooperate with the government. Both the Insurance Bureau and the Security and Futures Bureau are part of the FSC.
The FSC says that last year students in Taiwan won 213 medals in international invention exhibitions. “These students and many startups are worthy of investment, but need support. Therefore, we encourage enterprises to fulfill their social responsibility and lend them a hand,” the regulator says.
High-risk strategy
Still, some observers appear to doubt whether a government-run angel fund can be successful.
On June 17, Liu Tai-ying (劉泰英), founder of the Taiwan Research Institute, told CNA that the FSC’s plan was impractical. Liu says investing in startups is high-risk and that many venture capital funds fail. In biotechnology, the success rate is below 3%. If the angel fund started to show poor returns, Liu expects investors would demand their money back.
Lu Shao-wei (呂紹煒), a columnist, criticized the FSC for acting outside its ambit and also misunderstanding the problems faced by Taiwan’s startup industry.
In his article, Lu argues that the FSC is supposed to supervise and stabilize the economy, not promote economic development, “because that’s the Ministry of Economic Affairs' job.” He considers it strange for an agency, which is responsible for avoiding risk, to have such a high-risk strategy.
The success rate of angel funds in Taiwan is thought to be only about 10% to 20%. However, Lu pointed out that commercial banks and insurance companies usually do not make such high-risk investments.
Shen Szu-chi (沈司琦) is the chief executive of JSP Innovation Matrix and an angel investor. He argues that the key problem will not be finding money, but how the fund will be operated. He also says Taiwan lacks people with experience operating angel investment funds.
“The government should develop a platform that aligns all the angel funds and helps them cooperate with each other. For example, entrepreneurs Terry Guo (郭台銘) and Samuel Yin (尹衍樑) [chairmen of Foxconn and Ruentex, respectively] both have their own angel funds. If a platform is set up, their investment data will be more transparent for startups to see, including the fields they’re more interested in and the types of products they favor.”
Shen said startups could observe entrepreneurs’ investment trends, making it easier for startups to approach them. It would also very likely to increase investment from successful entrepreneurs.