Rise of SaaS: What Opportunities Await Taiwan Startups?

In recent years, the industry has undergone rapid changes. SaaS becomes the mainstream business model in the technology sector, utilizing subscription-based pricing. Especially after Generative AI, numerous new trends have emerged. For startups in Taiwan, what are the key opportunities? And how can they leverage their inherent advantages for development? This article will dissect these questions one by one.

• Industry Trends Analysis

• SaaS Industry Trends

• Current State of the Industry in Taiwan

• Opportunities for Taiwan Startups

Industry Trends Analysis

Observing the changes in the top 10 companies by market capitalization from 2000 to the present can provide valuable insights. In 2000, companies primarily focus on hardware and infrastructure dominated the capital market. The rapid development of smartphones and 4G networks accelerated the expansion of various software services after 2010. Giants like Alphabet, Meta, Amazon, and others rode this wave of technological advancement, leading to a major reshuffling of the top 10 companies over the course of a decade. Since 2020, more than half of the top 10 companies have consistently been software companies. The evolution of the industry, along with the maturity of cloud network infrastructure, has fundamentally transformed the approach to technological innovation. In 2023, everyone is talking about Generative AI, marking a new development milestone for AI. With rapidly increasing demand, it is expected that in the next 2-3 years, the industry will continue to be driven by software technology, with many related services entering the market. There are still many tech unicorns that have not gone public, including well-known startups like Notion, ByteDance, and Canva. In the coming years, the software industry is anticipated to remain highly active in the capital market.

SaaS Industry Trends

The chart below shows the Emerging Cloud Index (EMCLOUD) introduced by Bessemer Venture Partners, currently the most comprehensive index in the market covering SaaS companies and cloud service companies. Since its introduction in 2014, EMCLOUD has consistently outperformed the other three major US stock indexes. Even during the pandemic, there was an almost fourfold difference, clearly indicating the popularity of the SaaS industry in the capital market within the technology sector. Although there was a significant correction in 2021-2022, the financial features of the SaaS model, such as internal ROI surpassing the average for other companies, position it as a future trend favored and anticipated by investors. Following a substantial correction, the overall industry is gradually recovering. With the advancement of AI technology, there will undoubtedly be technological and business innovations in the related SaaS industry, driving continued growth.

Current State of the Industry in Taiwan

So, what is the current situation in Taiwan? According to the Ministry of Economic Affairs' "2022 SME White Paper," in 2022, Taiwan had a Toal of 1.61 million enterprises, with small and medium-sized enterprises (SMEs) accounting for 1.58 million of them, representing 98% of all enterprises and marking a historic high. Turning to the capital market, while the overall number of listed companies has been steadily increasing each year, the annual number of new listings on the stock exchange has seen a decline over the past decade. The top 20 companies regarding market capitalization are concentrated in the semiconductor, hardware, and infrastructure industries. This data indicates that the capital market is currently undergoing industrial shifts and requires breakthroughs and driving forces from new industries. Taiwan has a significant number of SMEs spanning various industries such as retail, catering, technology and manufacturing, and construction. Combined with a well-established network and infrastructure, this provides a conducive environment for the development of software technology and services tailored to cater to the needs of enterprise customers. Additionally, it sets the stage for expansion and growth in overseas markets.

In recent years, we have gradually witnessed the emergence of the software industry. Since 2021, a total of 11 new economy and software startups have successfully listed on the capital market. Among them are well-known industry leaders, including 91APP in retail e-commerce (6471), cloud service provider eCloudvalley (6689.TW), AI anti-fraud technology company Gogolook (TWSE-6902), big data healthcare company Everfourtune.AI (6841.TWO), and third-party payment company ECPay (6763.TWO). In addition, there are also startups that have successfully listed overseas, such as Appier (4180.TYO), Perfect (PERF.NYSE), Gogoro (GGR.NASDAQ), and Gorilla (GRRR.NASDAQ), gradually solidifying Taiwan's software and startup energy in various regional markets.

Opportunities for Taiwan Startups

What opportunities await Taiwan in riding this international wave? What are the strengths and weaknesses of this development? Due to the large number of small and medium-sized enterprises, Taiwan has a natural advantage in developing SaaS products for enterprise. SaaS services offer many benefits, including easy international expansion and better cash flow estimation due to subscription models. This is why software technology companies are gradually launching services in this mode. Moreover, the current adoption rate of SaaS among small and medium-sized enterprises in Taiwan remains relatively low. As awareness of digital transformation continues to grow, combined with the B2B service expertise accumulated in Taiwan's industry over the past 30 years, there is a strong suitability for focusing on the development of SaaS services in service-oriented software technology, bridging the final gap in connecting businesses. By establishing links between regional service integration and resource networks, competitive advantages and barriers can be formed.

SaaS services emphasize the integration of various platforms and technologies to achieve a seamless user experience. The SaaS-related industry in Taiwan started later, and the integration of the ecosystem is still in its early stage, which can lead to poor user experiences, as well as process and service interruptions. Moreover, collaboration between startups and mature companies can be challenging due to differences in scale, expectations for business cooperation, or varying goal settings. However, the construction and growth of the SaaS ecosystem require the involvement of both mature companies and startups. At this point, experienced venture capitalists can play a crucial intermediary role! Venture capitalists can understand the perspectives of both parties, creating a mutually beneficial cooperation model and guiding them to leverage their respective strengths in stages. In addition, as a neutral third-party, venture capitalists are adept at constructing a diverse and multi-party cooperation framework, enabling the ecosystem to fully establish and achieve healthy development, ultimately realizing mutual benefits.

Venture+ is familiar with the SaaS segment for enterprises, starting from the essence of the industry. In addition to providing necessary financial assistance, it brings a wealth of resources for startup teams - valuable corporate partnerships, practical growth strategy experience, and expert guidance on navigating the capital market. With the mindset of being the Best Co-founding Partner, we aim to establish a long-term, mutually beneficial cooperation bridge among SaaS startups, venture capital, and industrial enterprises.