Taiwan's stock market has become the standout performer among major global indexes this year, powered by companies that supply the hardware behind artificial intelligence. For the island's youngest startups, however, that success is creating an unexpected problem.
As local investors pour money into listed chip, packaging and server companies, founders say domestic appetite for risky early-stage bets has thinned. Some are now turning to Silicon Valley to fill their rounds, according to a report by Dataconomy.
A Rally That Reaches Well Beyond TSMC
The Taiex has gained more than 50% in 2026, overtaking South Korea's Kospi to become the best-performing major equity index in the world.
While Taiwan Semiconductor Manufacturing Co. remains the market's heavyweight, the gains have spread to chip designers, advanced-packaging specialists, networking firms and server manufacturers. Roughly 7% of stocks listed in Taiwan have doubled in value this year, compared with about 3% in South Korea.
Global fund managers appear to share the optimism. A Bank of America survey in September found that 35% of respondents expected Taiwan to gain the most from the next stage of the AI cycle, putting it level with the United States. Just 5% picked South Korea.
Why Founders Are Looking Abroad
Anderson Chen, founder and chief executive of industrial AI startup Operon Solutions, raised a $700,000 pre-seed round mostly from Silicon Valley investors, while setting aside a portion for Taiwanese friends and family. He said the round closed in three days.
Chen argued that the math simply favors public markets for local investors right now. He noted that stock-market bets on semiconductors can deliver tenfold returns, while even a startup that reaches a successful initial public offering might return only two or three times the original investment.
He added that overseas investors have become more receptive to Taiwanese deep-tech companies, drawn by the island's engineering talent and semiconductor know-how. In his words, fundraising has gotten easier overall, "but maybe not necessarily in Taiwan."
The Data Behind the Early-Stage Squeeze
Caleb Chu, who founded Taiwan-based early-stage investor Nova Studio, said the rally has drawn many local investors toward listed shares and away from venture capital and startups.
Figures from Findit, a government-commissioned platform that monitors Taiwan's startup ecosystem, support that view. Seed and angel rounds made up 38.4% of deals by Taiwanese venture firms in 2021, but that share had fallen to 17.1% by 2024.
Later-stage deals have held up better. B and C rounds accounted for 39 transactions in 2024, or 29.1% of Taiwan's venture deals. Chu said investors increasingly favor B-round, C-round and pre-IPO companies, where the route to a payout is easier to see.
A Crowding-Out Effect on Private Funds
Accounting firm KPMG Taiwan flagged the same dynamic in a March report. It said the strength of TSMC's share price had produced a crowding-out effect for private funds.
The logic is straightforward: listed AI stocks can be bought and sold quickly, while venture funds typically lock up capital for years and offer less certain exits. When public markets are delivering strong returns, the trade-off makes private funds harder to sell to investors.
Taiwan Moving Against the Global Current
Elsewhere, the picture looks different. PitchBook and the National Venture Capital Association reported that early-stage dealmaking in the first quarter of 2026 was more favorable for AI startups than for companies outside the sector.
At the same time, their separate data showed that 87.5% of U.S. venture capital invested in the first half of the year went into rounds of $100 million or more, highlighting how concentrated large-scale AI funding has become.
Chu sees Taiwan as an outlier. He said investors around the world are tilting toward early-stage deals because of their higher return potential, while Taiwan is heading in the opposite direction.
What It Means for Taiwan's Startup Ecosystem
For Taiwanese founders, the message is that home-market capital may be harder to secure at the earliest stages as long as AI stocks keep outperforming. Those with strong technical credentials may find a warmer reception from foreign investors instead.
For the broader ecosystem, the shift raises questions about how the next generation of local companies will be funded. A thriving public market built on the AI supply chain is a clear strength, but if it continues to draw money away from seed and angel rounds, the pipeline of new startups could depend increasingly on capital from outside Taiwan.
Source: Dataconomy
