TAIWAN Law and Practice Contributed by: Lihuei Mao (Grace), Dennis Yu and Christina Chiang, Lee and Li, Attorneys-at-Law
2.4 Particularities The following types of VC fund have grown to be an increasingly significant part of the Taiwan venture capital market. Government-Backed VC Fund/Fund-of-Funds The National Development fund (NDF), estab - lished by the National Development Council of the Executive Yuan, Taiwan’s highest administra - tive body, is very active in investing in entrepre - neurs, either directly or through other funds, in order to support finance, technology, talent cul - tivation and management of new ventures, and to meet the government’s needs around national economic development. One notable example is NDF, which, together with several financial institutions, has established the Taiwania Capi - tal Management Corporation ( “Taiwania” ), and has been appropriating a significant amount of funds to invest in start-ups. Taiwania has raised several funds-of-funds that focus on investment in specific industries such as the IoT, biotechnol - ogy and technology. CVCs Through making investments by CVCs in start- ups that are in related industries, leading compa - nies in Taiwan efficiently acquire innovative tech - nologies or achieve supply chain integration, especially in the technology and biotechnology sector. Large financial institutes also, through their CVCs, look for and invest in start-ups that have a potential financial upside. Green-Energy-Related Fund The Taiwan government aims to retire all nuclear power plants by 2025 and is actively supporting the development of renewable energy sources such as offshore wind farms, solar power and other green energy alternatives. Several finan - cial institutions have formed their own venture capital funds with a focus on green energy, and
these funds, together with banks in Taiwan, have played important roles in financing transactions in the renewable energy industry in Taiwan. 3. Investments in Venture Capital Portfolio Companies 3.1 Due Diligence For early stage and/or small-scale investment, most VC funds would usually only conduct high- level financial, legal and business due diligence in-house rather than engaging external advisers. VC funds usually focus on business and technol - ogy due diligence, including the technology to be developed, business model and plan. Legal due diligence is usually not the main focus but the VCs would still pay attention to the agree - ments with existing shareholders, restrictions on the founders, IP issues, material business con - tracts and major legal proceedings. For mid-stage or large-scale investment, most VC funds, the lead investor, would engage exter - nal legal counsel to conduct a more comprehen - sive legal due diligence that covers most aspects of the target company’s operation, including the following: • corporate and permit; • shareholders’ agreements; • material contracts with top ten (or major) sup - pliers and customers; • major assets; • arrangements with founders and employees, including employee stock ownership plan (ESOP) or other incentive structure; • compliance; • IP matters; • customary public search, including IP and litigation searches; and
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