QIC Inside Investor Relations Volume 41: Who will be the unicorn sweeping the market in ten years? Insights from Alex Lee, founder of QIC, and Peter Yen, founder of Pinkoi, on the future battlefield of new ventures
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This episode of the Inside Investors Relation is edited and republished with permission from TaiwanPlus Point
Taiwan's start-up circle has been developing vigorously in recent years, and the total amount of funds raised by new-economy start-ups has grown four to five times in the past five to ten years. What are the most valuable startups in Taiwan? Will there be any unicorn tech companies shortly? Alex Lee, CEO of QIC, as a promoter of innovations, has worked hard to help promote at least 30 Taiwanese unicorn companies before starting to promote innovations in Taiwan's New Economy. Further predicted that in 10 years, Taiwan will have more than 100 Corner Companies.
In this Inside Investor Relations volume, we will provide Mr. Lee and Mr. Yen's views on Taiwan's new ecosystem and new economy through interviews and ask Mr. Yen to share Pinkoi's successful experience. The following is our interview content:
Q: Alex, as a promoter for Taiwanese startups, do you see Taiwan producing more than one tech unicorn in the near future? What's your definition of a New Economy?
A: Last year the firm I run, QIC, just made a prediction that by 2031, Taiwan will produce more than a hundred unicorns. We believe that within 10 years we'll see five US$10 billion companies produced. And more than 20 out of them will be more than US$5 billion. And most of them will be coming from the “New Economy”. New Economy is better referred to as any company that builds up a product. The product normally is a service, app, or all kinds of applications, software basis. And at the same time, when they raise the capital and invest normally, they invest in technology, products, and marketing expenses, and acquire nice, good talent. They also try to penetrate the market including Taiwan and the rest of Asia, and maybe the rest of the world. That’s how I define “New Economy.”
When mentioned “New Economy” promoter, we've been committed as a promoter of Taiwan's old and New Economy for almost the last three years. Before we talk about being a promoter of the so-called Taiwan New Economy and startup companies, my colleagues and I have been promoting or helping to promote and produce more than three dozen unicorn companies in Taiwan, including companies like TSMC or Systech, and so on. We simply just follow the pattern by promoting Taiwan's best quality class of technology companies to the same and further expanding to global investors to apply to the Taiwan New Economy. If you look at Taiwan, probably 90% of the public trading companies are really much like manufacturing-based companies. And because of our culture and the regulations, people evaluate or invest in a company pretty much based on some sort of cash flow basis or accounting basis evaluation. However, global investors tend to look at and invest in a company with a great plan, a great vision, a number of users, and revenue, even though they haven't produced so-called earnings, or they haven't paid out the cash dividend yet. I think this is a major change or a major difference between traditional Taiwanese investors versus global investors.
Q: When speaking of software and products we're known for having the best engineers here in Taiwan, and also the mind for innovation. So why didn't this unicorn exist before? Why now?
A: 20 to 30 years ago, a lot of great engineers who came back from Silicon Valley, U.S. worked at hardware-related companies, however, software companies dominate technology companies in Silicon Valley and the U.S. So, no wonder there are a lot of great talents coming back to Taiwan from those great companies such as Google, Facebook, etc. to start up a software-based company, the timing is just right now.
P: If we look back, during the first few years when Pinkoi started back in 2012, the funding at the time was very limited. We didn't have a lot of investors in this kind of startup ecosystem, and people were kind of risk-averse at the time. However, if you look back on the last few years, the startup ecosystem is very vibrant. There are many rising sectors, and many service companies are running their service using software, and sometimes they also leverage the strength of hardware manufacturing in Taiwan. So, we are very excited about the future of Taiwan.
Q: Let’s talk about the investment environment here in Taiwan. People would say Taiwan could be relatively conservative. There's a lack of angel investors or Series A-round investors. Do you feel this way?
A: They've been particularly conservative in the so-called New Economy business before, but a lot of changes happened in this particular space, particularly in the last three to four years. Based on the statistics I've gathered, the total money raised for startup companies in the New Economy space grew roughly about four to five times during the first half of the last decade. The money is much more aggressive right now, particularly in the early stage.
P: If you have a good idea about having a software-based company, it will be easy to get the first ticket from angel investors or institutional investors. Investors in Taiwan are much more willing to embrace risk. I think they also have the mindset about what would be the future of Taiwan. Silicon Valley is always talking about software eating the world and we believe that the future software will enable and empower a lot of facilities and services. If investors are looking into the future from this lens, what isn’t going to change 20 years in the future? I think that kind of creativity and innovation is not going to change, and those kinds of things are going to be very beneficial to all the entrepreneurs in Taiwan.
Q: Do you see the Taiwan government's regulations right now for the startup system as a challenge? Do you feel the Taiwanese government's policy or restriction is friendly to the Taiwanese ecosystem?
A: I won't say so. No matter the regulator and the Taiwan Stock Exchange, they start sensing that there's a demand from New Economy type of companies. They start trying to launch a new system, such as the TIB panel (Taiwan Innovation Board). As well as PlayNitride, a company without committing any profitability just got approval from the Taiwan Stock Exchange board for going public.
When I joined this industry as an equity sale almost 30 years ago, the reason why investors love investing in Taiwan is that they love the domestic investment kind of climate, including liquidity. Because there's a saying in our world, ''Liquidity always invites liquidity.'' And when you have enough liquidity. Guess what? You will see the valuation trending up. For example, 91APP, when compared to other Asian companies, is trading at a premium in terms of valuation. Due to the retail participation and the domestic institutional investors being a part of the growth of the valuation versus some other markets. And I hope that TIB as a market can further open up to a much broader base kind of domestic investors, which will invite more global investors to join the TIB transaction. I think another reason why there will be more than one tech unicorn is that companies will be looking for some other foreign exchanges to go public. Perfect Corp, for instance, is going to go for an IPO in the U.S. through the SPAC kind of process. If the Taiwan regulator or the Taiwan government doesn’t do anything, they will go elsewhere for further public listing.
P: I think from a policy point of view, regulation is essential. But I think the important thing is how are you going to do this kind of regulation. If the regulation is going to be very strict, you're going to lose a lot of momentum. If the regulation is going to be very loose, you lose protection for the general investors. So, for protection and growth, we need to strike a balance.
So, from the TIB or the Taiwan government's point of view, I think in the past ten years, the younger generation understand how to invest in a company. They're more willing to embrace the risk. There is a saying that the stock market in the short term is a voting machine. In the long term, it is a weighing machine. If we can give the young generation opportunities to vote for the company and the Taiwanese future, I think that the future in Taiwan would be very bright.
If the Taiwan market and the overall entrepreneurship in Taiwan want to be successful, we need to look at it from the competitive landscape. If we look at Asia, like Japan, they have the Mothers Board. The Mother Board is very similar to the TIB. The Mothers Board has fewer restrictions and fewer regulations. They encourage more people to join that kind of market. So, going forward, I would suggest the Taiwanese government open up the regulations little by little, and infuse more growth momentum for the future.
Q: With a relatively smaller market size for Taiwanese startups. Many believe that we should follow the example of Israel or Sweden and Finland. What can we learn from them? Can we have our Taiwanese style?
P: I think there are two aspects that the Taiwan government can learn. One is about policy. I think in countries like Israel, Sweden, and Finland, you can see that their national policy encourages innovation. For example, Finland opens up a lot of regulations to allow more innovative and disruptive business models, which resulted in a designer brand called Marimekko and a popular worldwide gaming app, Angry Birds. The second is about education. I think their English capability is much better than ours right now. I think English is an international language. If you don't speak English, it's hard to serve your customers in different markets or build partnerships with investors from different parts of the world. Not only the language within the Education aspect but also from their children to adults, they encourage this kind of dare-to-fail spirit. I think it's about the mindset which we try to encourage, not only our team members but also all the people that we know. We need to dare to fail. If we don't dare to fail we aren't going to change the world.
A: When you're talking about developing the Taiwanese style, it is happening. Bear in mind, that Taiwan's market is one of the most globalized kinds of equity markets in Asia. The foreign investment represents 40% to 43% of our total market capitalization. If you compare that to a market like the Tokyo Stock Exchange, which is considered one of the earliest so-called globalized equity markets. Guess what? Their foreign holding is only roughly about 30%. This is what's unique about Taiwan. That's the Taiwanese style. You have domestic investors, you have a young generation, creative investors, you got global investors. I can't see any capital market in Asia that has that most beautiful combination from three or four different kinds of angles. I believe with more deregulation, or younger startup companies, I only see further upside in the Taiwan capital market.
Q: 10 years ago, startup founders would want to go to 500 Startups or YC in Silicon Valley, because they believed they want to be closer to money or investors in Silicon Valley. Do you feel this is still the same way here right now?
A: I guess more than that is for the whole process of capital market development or in terms of fundraising development. I think New Economy type of software companies particularly are going to experience quite a different sort of type of fundraising or capital market requirements versus traditional manufacturing basis companies. In the last 30 maybe 40 years, any hardware manufacturing basis company soon after they earn money, they can start applying for an IPO. So long as they meet whatever liquidity, where there's a black and white cashflow-related kind of requirements. But for software companies, like many great software and game-changer companies in the U.S. They want to use every cent they generate from making revenue to reinvest to gain more market share or to create more different kinds of products. That is a very different kind of capital market business model to the New Economy. So, we need some changes, not just only from an investment basis. I think the regulation of the ecosystem also requires a brand-new sort of infrastructure built up here in Taiwan.
P: I think it's still an option for any entrepreneur. But I think right now, because getting funding in Asia or Taiwan is much easier compared to 10 years ago, the choice for entrepreneurs is that they need to think. They need to be close to the market, close to the consumer, rather than close to funding. Because right now funding is not an issue anymore.
Q: Peter, can you please share with us a bit more about Pinkoi’s success story? what kind of changes were needed to gain international investors' support or from Silicon Valley?
P: I think one thing is, that Sequoia understands how challenging it is to run a business like Pinkoi. We're building an international two-sided marketplace in Asia. So, I think the business fundamental is very challenging. The other thing is, that Sequoia believes in the vision that we believe. We believe that the design can become a universal value. And when we look at the keyword, design it represents two keywords: creativity and innovation. We are taking a very different approach; we're using commerce to lead a social movement. We deeply believe that if we can infuse more creativity and innovation into our society, I think the young generation, the future generation of Taiwan, or even the generation in Asia, can enjoy a much better life.
I think first we need to clearly state what will be our ambitions, tell the story about our ambitions, and use commerce to drive this kind of social movement. The other fundamental thing is that we need to pay more attention to international expansion. As well as telling them what we are going to picture the future in terms of how we're going to drive our revenue stream, and for those revenue streams how they connect with our business and with our customers. So, I think the international investors are paying much more attention to the future story of your business and not just looking at them right now.
Q: Japan and Thailand are the hottest markets for Taiwanese startups to go to. Do you have a lot of experience to share with Taiwanese young entrepreneurs in going into these two markets?
P: I think the one word I can share is “glocal”, like global and local. When we tried to enter Japan at the time, it wasn't very successful in the first few years, until we learned that it is very important to understand their cultures and what Japanese consumers are looking for. They were looking at all the fonts on the Pinkoi app and website. They also care about the company profile. They need to understand what kind of company they are doing business with. They care very much about trust. So, I think we spent a lot of effort working on those subtle details to try to gain the trust and respect of the local team members and our local partners. And that kind of trust and respect can attract more Japanese consumers and designers to join our marketplace.
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Source: https://www.taiwanplus.com/originals/220611001?q=qic