Taiwan’s AI stock surge shifts funding focus for startups

Taiwan’s Taiex index has risen by over 50% this year, surpassing South Korea’s Kospi and becoming the world’s top-performing major index. The gains aren’t limited to Taiwan Semiconductor Manufacturing Co., extending to companies involved in chip design, advanced packaging, networking, and server technologies. Approximately 7% of Taiwan-listed stocks have doubled in value this year, compared to 3% in South Korea, making Taiwan a preferred destination for Asian AI investments. A recent Bank of America survey revealed that 35% of fund managers believe Taiwan will benefit most from the next phase of the AI cycle, matching the US and surpassing South Korea’s 5%.

Anderson Chen, founder and CEO of Operon Solutions, a Y Combinator-backed industrial AI startup, opted to raise his company’s $700,000 pre-seed round primarily from Silicon Valley investors, with a smaller participation from Taiwanese friends and family. He noted that the potential for substantial returns in the stock market diminishes the appeal of startup IPOs, which might only yield a two- or threefold return.

This trend presents a challenge for startups aiming to innovate within Taiwan. Caleb Chu, founder of Taiwan-based Nova Studio, an early-stage investor, observes that the stock rally has diverted Taiwanese investors toward listed shares, reducing their interest in venture capital and startups. Data from Findit, a government platform tracking Taiwan’s startup ecosystem, indicates a decline from 38.4% in 2021 to 17.1% in 2024 for seed and angel investment rounds by Taiwanese VC firms. Conversely, B- and C-round deals have increased, accounting for 29.1% of total investments in 2024.

Private equity funds are also facing pressure, as a KPMG Taiwan report highlights a “crowding-out effect” where investors favor liquid public AI stocks over funds with longer investment lockups. While US venture data shows continued early-stage investment, Chu notes Taiwan is an outlier, with investors shying away from early-stage ventures.

Despite this shift, Chen believes that Taiwanese deep-tech startups seeking overseas capital are finding it easier to secure funding, thanks to the nation’s technical expertise and semiconductor industry. Operon Solutions’ pre-seed round closed within just three days.