Taiwan has ridden repeated waves of entrepreneurial spirit to emerge as the world's 18th-largest economy and 16th-biggest trading country. From Stan Shih, who invested NT$1 million to start Acer Inc., to Terry Gou, who turned a tiny plastics factory into an electronics empire, to the island's Internet and cultural entrepreneurs of today, these risk-takers have transformed Taiwan into a high-tech innovation center that is the envy of China, South Korea and Singapore.

In contrast to start-up ventures in the past, Taiwan's new generation of entrepreneurs have moved on from the previously popular semiconductor and flat panel sectors to biotechnology, health care, value-added agriculture, Internet service, and cultural industry.

Where having a technical skill was once enough to successfully launch a business, today's entrepreneurs must now extend their interests into new sectors and pursue an even higher level of knowledge-based skill. An even more dramatic change is the need for their start-up model to be more precise and sophisticated.

"Now smart entrepreneurs understand that when they are just beginning, they need to find shareholders who can bring value, instead of simply raising a few million Taiwan dollars among relatives and friends," observes WK Technology Fund managing director Frank Ho.

When Dr. Chin-Yao Tsai, one of the main movers behind Taiwan's solar power industry, founded Auria Solar three years ago, he based his shareholder structure on strategic alliances, bringing in key customer Lite-On Technology Corp., key equipment supplier Hermes-Epitek Corp. and strategic investment partner WK Technology.

New enterprises have not only been the kindle fueling Taiwan's economy, they are also the key engine of social mobility in the country. In recent years, however, statistics indicate that enthusiasm for launching businesses, at least on the surface, has turned cold.

The ratio of new enterprises to total enterprises, which hit a historical high in 1992 at 13.3 percent, has since declined to 5.5 percent. Not only have start-ups become fewer in number, they've also been smaller than in the past. The total paid-in capital of these new enterprises as a ratio of the paid-in capital of all companies plunged from 5.9 percent in 1995 to 0.6 percent last year. (See Table)

"Everybody in society now hopes for stability for their children, which means that children are more timid," observes Epoch Foundation president Paul Hsu. An entrepreneurial society is like a pearl necklace, Hsu explains. Every pearl in the chain – from venture capital, capital markets, new enterprises, and an enterprising spirit to small- and medium-sized enterprises, globalized enterprises, R&D, intellectual property, technology transfer and back to venture capital – is connected together, and not a single pearl can be left out.

Today, however, the pearl of enterprising spirit on this necklace pales in comparison with the past, and the once-bright pearl of venture capital is utterly lacking in luster. 

Between 1995 and 1999, 144 venture capital companies were created in Taiwan, but during the past four years, the number of new venture capital companies dwindled to just eight. The amount invested annually by venture capital firms has dropped precipitously from NT$30 billion in 2000 to NT$13.6 billion.

The good news in this otherwise bleak picture is that Taiwan's large corporations are finally understanding how to start businesses from within and have absorbed many of the start-up enterprise opportunities.