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6 in 10 startups fail within 3 years: report

Six in 10 Korean venture businesses fail within the first three years, according to a report Wednesday.

In a report titled “2nd-round Startup Ecosystem in Numbers,” the Korean Chamber of Commerce and Industry said the number of venture companies in Korea had risen to over 30,000 due to continuous deregulation over the past decade. 

For example, the process for creating a startup business was reduced from 12 steps to two steps, speeding up the process from 22 to four days. 

However, a lack of an investment ecosystem and difficulty in finding markets led to 62 percent of these businesses closing down within three years, the report said. 

Of the 26 Organization for Economic Cooperation and Development countries analyzed in the report, Korea came in 25th in terms of the three-year survival of startups. 

Difficulties in finding long-term investment or markets for their products or services were cited as major hurdles for the venture companies. According to data cited by the Korean Startup Ecosystem Forum, startups were funded more often in their early stages (years one to three) than in the later stages (past three years), as of 2015. 

(123rf)
(123rf)

“With 80 percent of corporations shutting down within 10 years, it is difficult to find investors who are willing to look 13 years ahead,” the KCCI report said. In Korea, it takes a venture business an average of 13 years to be listed on the tech-heavy Kosdaq, compared to an average of 6.7 years for an American startup to be listed on Nasdaq. 

The country’s pool of angel investors -- wealthy individuals who provide capital to venture companies -- is also small, standing at about 83.4 billion won ($73 million) in 2014, just 0.3 percent of angel investments in the US. 

According to the Global Entrepreneurship Monitor for 2016, Korea has above-average government programs to help venture companies get off the ground, but the Korean entrepreneurial ecosystem has insufficient sources of entrepreneurial finance, entrepreneurial education and commercial and legal infrastructure.

By Won Ho-jung (hjwon@heraldcorp.com)
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