AVCJ Awards 2015: AVCJ Special Achievement: Ta-Lin Hsu

The first investment made by the H&Q Han Tech Fund - a Taiwan-focused vehicle set up in 1986 with the support of Hambrecht & Quist - was in Acer. The nascent PC maker went public 18 months later and the subsequent exit delivered a return of more than 4x.

IBM had brought out the PC several years earlier and Taiwan responded with gusto, creating a high-tech industry based on subcontracted manufacturing of semiconductors, computers and related components for developed markets.

Ta-Lin Hsu was there, heading the VC fund that leveraged this high-tech awakening. Nearly 40 years on, he remains within the industry as founder and chairman of H&Q Asia Pacific, but the focus has inevitably shifted. Rather than helping Asian companies become manufacturing outposts to the world, Hsu is supporting them as they seek out new technologies in the US in a bid to breathe new life into aging business models.

The US has such innovative power because it is a melting pot with so many talented individuals of foreign origin

This is the purpose of H&Q's Global Innovation Center (GIC) initiative, which recently set up a home in two commercial properties not far from San Francisco International Airport. The private equity firm paid $90 million for the space, with another $10 million earmarked for developing the networking, programming and technology transfer that underpins the GIC concept.

Hsu admits he has gone full circle. "We followed the money and at first that was foreign direct investment into Asia," he says. "Now it is reversed. The underlying reason is the West is led by innovation. The US has such innovative power because it is a melting pot with so many talented individuals of foreign origin."

Taiwan's renaissance

His role in the early days of Asian venture capital is also indirectly linked to a technology park. Born and raised in Taiwan, but educated at the University of California Berkley before joining IBM, Hsu returned home in part because of the Hsinchu Science & Industrial Park. Established in 1980, this facility was intended to be Taiwan's answer to Silicon Valley, a place for the diaspora to seed their US experience into a generation of domestic hardware start-ups.

Venture capital was part of the puzzle and in 1982 the government approached Hambrecht & Quest, a tech-focused investment bank, for help. Hsu, who offered the requisite language and technical skills, came in as the bridge between Silicon Valley and Taipei. The $20 million H&Q Han Tech Fund was the result. In addition to Acer, it backed companies producing everything from motherboards and to mice.

By the early 1990s, Taiwan was supplying roughly half the key components for PCs globally. Mainland China also set its sights on technology manufacturing, with the introduction of hubs in Shenzhen and Beijing's Zhongguancun district. In India, Bangalore began to come to the fore.

"It was thought the global technology sector would operate under a distributed system," Hsu recalls. "There would be seven centers. But if you look at what has happened over the last five or so years, Silicon Valley still stands out. It is unbeatable in technology innovation and that is because the other places depend on locals, with very little injection of foreign capital."

Once established, H&Q did not sit still. The firm entered the Philippines in 1986, Singapore in 1988, Malaysia in 1990, Thailand in 1991, China in 1993, Indonesia in 1995 and South Korea in 1998. Technology was always the primary focus but the nature of opportunities brought more sectors into play, particularly consumer-oriented areas.

A number of these funds were mandates from governments, companies and development organizations. In this respect, Hsu describes his activities in a developmental context, albeit one that had to deliver returns to investors. He is also an advocate of Kwoh-Ting Li, known as the father of Taiwan's economic miracle for his contribution to the emergence of the technology sector.

"Venture capital has become an increasingly important financial tool," Hus adds. "Institutional investors have traditionally considered venture capital and private equity to be alternatives, but these days, with all the innovation and the venture capital boom, you could argue they have become more mainstream. In China they are encouraging everyone to become an entrepreneur."

A global game

H&Q Asia Pacific has invested in more than 700 companies through 26 funds since inception and has total assets under management of $3.5 billion. Asked to list the components of an ideal fund to address the current technology landscape, Hsu simply says it would have to target the whole world.

"It's a global game now and you can't limit yourself - it's like saying you only want to compete in table tennis at the Olympic Games and avoid basketball. But then you need to assemble a globally competitive team and then cooperate with local talent where you don't have it. Our job is to create the best team in Silicon Valley. They might be Taiwanese, Singaporean, Indian or Israeli, it doesn't matter where they come from, provided they are globally competitive."

In the subcontracted manufacturing world a local strategy works because companies don't need to understand how or why their customers are selling to, just produce the goods as cheaply and efficiently as possible. But this approach has been undermined by wage inflation in developing markets, and these companies are now looking to H&Q for helping finding new answers.

Transformation is a challenge for big companies, but Hsu thinks it can be achieved by sending pilot teams of engineers to Silicon Valley and incentivizing them by offering equity in a new company based on technologies they identify. This new company could then be listed or acquired buy the Asian parent. H&Q's GIC is intended to serve as a base from which these forays can be made.

"It us all about utilizing Silicon Valley's power and the entrepreneurship incentive to rejuvenate the old company," Hsu says. "I want to help the constituent companies, but I would also like first right of refusal to put our fund's money into the companies we help."

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• Topics
• Greater China
• Technology
• Venture
• Investments
• Venture
• China
• Technology
• H&Q Asia Pacific
• Ta-Lin Hsu
• Taiwan (China)
• Asia