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Tawania, Taiwan’s investment fund begins to make a mark in central and eastern Europe

Taiwan

Tawania, a $200 million venture capital fund set up by Taiwan’s National Development Fund is filling a gap for start-up funding in central and eastern Europe, and building connections with Taiwan’s industry and research base. Following its formation in March 2022, the fund has made three investments to date, and is shaping up to be a significant player in a region where local venture capital is scarce.

“From the $200 million fund, we are looking to invest in 20-25 companies,” said Mitch Yang, managing partner of the Central and Eastern Europe (CEE) Investment Fund at venture capital firm Taiwania Capital. “We have just started, and we are going to speed up, so this year our target is to invest in six to eight companies.”

The fund has a broad range of interests, taking in semiconductors, laser optics, biotechnology, aerospace, fintech, electric vehicles, smart manufacturing, artificial intelligence and smart cities. Its first investments are in Litilit, an industrial femtosecond laser start-up based in Lithuania; Photoneo Brightpick, a computer vision and robotics business in Slovakia; and Oxipit, an AI medical imaging start-up in Lithuania.

“Taiwania brings fresh capital to a capital constrained market,” said Andrey Bakholdin, vice president for marketing at Photoneo Brightpick. “$200 million for the Czech Republic, Slovakia and Lithuania is a big fund, and it’s going to be important for the local start-up ecosystem.”

The fund is open to all  countries in the region, but prioritises investments in companies from Lithuania, Slovakia, and the Czech Republic. This focus reflects where the fund feels its investments can have the most impact and find the best fit with Taiwan’s industrial strengths. But it is also influenced by broader developments in the relationship between Taiwan and the region.

The origin of the fund lies in the COVID-19 pandemic, which helped forge new connections between Taiwan and countries in central and eastern Europe. In the early months of the pandemic, Taiwan sent masks and medical supplies to the region, with countries such as Lithuania, the Czech Republic, Slovakia, and Poland returning the favour with vaccines when the virus spread in Taiwan.

This mutual aid resulted in a government delegation from Taiwan to the region in October 2021, and discussions about how cooperation could be extended. The fund is one result of these discussions.

An additional reason for supporting Lithuania emerged in 2021, when the country welcomed a Taiwanese representative office in Vilnius. This sparked a diplomatic row with China, which does not recognise Taiwan as a country that has turned into a full-blown trade dispute between China and Lithuania. Taiwan has offered significant investment aid to its European ally, most recently with support for its semiconductor industry.

But there are also solid business reasons for the fund’s interest in Lithuania, rather than the more dynamic start-up ecosystem of Estonia, for example. “After visiting Lithuania, we found that it is a better match for Taiwanese companies and industry,” said Yang. “The number-one attraction is being able to use Lithuania’s femtosecond lasers in our electronics applications. It’s likely that this technology will play a role in the next generation of semiconductor development.”

And the door is always open to companies from other countries in the region. Taiwania’s next delegation will visit Estonia and will also return to Poland, which it sees as promising, but a bigger ecosystem that is slightly more complex for external investment.

Venture capital gap

The fund has entered a market where venture capital in series A and B rounds is scarce, and the local fund managers are more interested in software, fintech, and AI than in deep tech start-ups. This is particularly apparent when it comes to the life sciences.

“We’ve been surprised by the strength of biotech and biochemistry-related companies in the region, particularly in Lithuania, Slovakia, and the Czech Republic,” said Yang. These start-ups have a solid grounding in basic science generated in academia, but then struggle to raise the relatively modest funds. they need to progress. That might be $4 – $5 million for series A, or $8 – $12 million for series B.

“These companies are difficult for local VCs to support, since they may not have that kind of money,” Yang said. “And the companies are still too small and not on the radar of VCs in western Europe, the US, or perhaps Japan. So Taiwania is coming in at the right moment, and focusing on the right stage.”

It also has more resources to draw on. In-house, Taiwania has around 63 people to carry out due diligence, and where more specialist knowledge is required, it can tap into experts in Taiwan’s national health research institutes. “So, it’s easy for us to have that kind of feedback, and while it’s not so easy for other VCs.”

While the broad strategy takes its direction from the National Development Fund, Yang and his team at Taiwania are given a free hand when it comes to the choice of companies. “We are a professional VC fund, and most of all we think these are very good companies, and we’re going to get a good return out of our investments.”

Each investment is meant to unlock mutually beneficial links between the company and Taiwan, whether that is a research collaboration, a business partnership, or the development of a new market. The details need not be established at the time of investment, but should develop from the company’s business strategy.

“We want them at least to have an idea about possible connections,” said Yang. “They can’t just come up with something because they need the money. That doesn’t work. They have to think about it before they apply, then afterward we can help them to build connections in Taiwan.”

In most of the fund’s priority sectors this is relatively straightforward. Medical and biotech companies can find partners in Taiwan’s national healthcare system, for example carrying out research or starting clinical trials. And for engineering companies, there are lots of options for connecting with the electronics and manufacturing sector.

Software companies can be harder to accommodate, particularly in financial applications. “Perhaps 20 – 30% of fintech companies are pretty local, and it’s difficult for them to build a connection with Taiwan,” Yang said. “So, if a fintech company is too local then we have to pass, even if it is a good company.”

Computer vision and robotics

Thinking of Taiwanese connections was not a problem for Photoneo Brightpick, the fund’s second investment. Photoneo was founded in 2013 by three PhD students specialising in machine vision, physics and artificial intelligence at Comenius University, Bratislava, to develop 3D sensors for machine vision and automation, targeting industrial applications in the automotive, manufacturing, and logistics sectors.

In 2020 the company started a separate business division, Brightpick, to develop an end-to-end robotic solution for e-commerce order fulfilment, combining Photoneo’s machine vision technology with custom made robotics and AI.

Brightpick ran a $21 million series B round in 2021 to support scaling-up in Europe and the US, but found demand for the product greater than expected. This is where Taiwania came in, leading an extension to the round that brought in an additional $19 million.

“When we were considering doing the fundraise, our main priority was speed and certainty of execution,” said Bakholdin, who worked on the funding round with CEO Jan Zizka. “We were seeing more customer demand than we expected, and very strong uptake from the market, and we didn’t want to lose momentum because we couldn’t fund it.”

Taiwania had both the resources to help, and a professional outlook. “They were always very focused and ran an efficient due diligence process, so from that standpoint they were an excellent partner for us.”

Its interest in fostering connections with Taiwan also sat well with Photoneo’s plans to build on an already substantial presence in Asia. “Taiwania brings a lot of synergies to the table with regards to expanding into Taiwan. And for Brightpick, within the next 12-24 months we will be actively exploring the potential for expansion into Asia, so having a local partner will be very valuable,” Bakholdin said.

The business case was also strong for the fund. “Photoneo is one of the top 3D camera producers in the world, and that business has broken even this year,” Yang said. “So, we know they are going to grow in the future and make money.”

He was impressed by the way the company had integrated its camera technology with robotics and AI, and then put the system through its paces in real warehouse situations. “This is different from some of the companies we look at, which may have very good solutions, but are looking for other people to help them integrate them and sell them,” Yang said. “This willingness at Brightpick to jump in and get their hands dirty means their system will be more stable than their competitors.”

Brightpick currently has five active installations in the Czech Republic and Slovakia, the biggest with the Rohlik online grocery group. Its first installations in Germany and the US will follow in April. And a further funding round is due later in 2023, mainly targeting US investors.

This will further internationalise the company, while retaining its Slovak roots. “Our tech development, R&D, manufacturing hub is still in Bratislava, but we are growing in the US. We have an office in Cincinnati, we are scaling the team, and together with Europe, it’s our main focus going forward,” Bakholdin said.

Looking to the future, Yang sees the fund as the first step in sustained cooperation between Taiwan and the region, which will be driven by current events such as the war in Ukraine. “Once the war is over, there will be reconstruction and something like a Marshall Plan,” he said. “That will be focused on Ukraine, of course, but it will affect the whole region. Ukraine, Poland, Slovakia, the Czech Republic, and the Baltics are going to play important roles.”

While the US is likely to drive that reconstruction effort, it will need to be a collaboration. “I want Taiwan to play a part, in our strengths, our values, and our convictions,” Yang said. “We want to be a player, and to invest based on our values.”

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