BUSINESS

[Save the startups] What it takes to keep a startup up and running

By Bae Hyun-jung

Despite high spirits over the ‘fourth industrial revolution,’ local startups face hurdles in early-stage funding

  • Published : Sept 19, 2017 - 17:52
  • Updated : Sept 19, 2017 - 17:52
While the former Park Geun-hye administration’s slogan of “creative economy” may have seemed somewhat abstract to many, the incumbent Moon Jae-in government narrowed the concept down to a distinct keyword -- startups.

Such a message was clear in the promotion of the former Small and Medium Business Administration into the Ministry of SMEs and Startups, as well as the incoming launch of a presidential committee to promote the “fourth industrial revolution.”

Despite such an ample gesture of encouragement from the public sector, however, aspiring new market players continue to face a number of hurdles, especially in securing kick-starting funds and settling in the business ecosystem.

The general feedback from the startup circles is quite clear.

The government should focus on the big picture, lifting excessive regulations, while it is the private sector which is to make more active moves to break out of its conventional capital-based investment culture.

“Venture investment and (government subsidy based on) tax are not really compatible,” said Simon Kang, CEO of early-stage venture capital BonAngels.

“Investing in ventures and startups inevitably involves a high level of risk, which I believe should not ride on the taxpayers’ money.”

The bureaucratic requirements which are incidental to government funding, such as quarterly fiscal reports, also place extra burden on early-stage businesses, he added.

Kang’s advice is that aspiring entrepreneurs build a win-win investment relationship with pioneering venture firms which have had a similar experience in their early years.

But in reality, many novice businesses find themselves compelled to seek for government support to survive in the market at all costs.

According to statistics by the Korea Technology Finance Corporation, the number of startups with less than five years in business stood at 34,281 as of the first half of this year.

Considering the Korea Chamber of Commerce and Industry data that only an average of 38 percent of startups survive their first three years in the market, the actual number of new business founders may even near the 100,000 level during the past three to five years.

Even those that do hold out during the initial years tend to rely on meager business funds.

The annual data compiled by the government-funded Korea Startup Ecosystem Forum late last year showed that startups were founded on an average seed money of 31.5 million won ($27,866).

Amid challenging situations, it was the government subsidized businesses which showed to be the most durable, with some 66 percent of them making it past the first three years in operation, according to the SMBA survey in 2015.

The Financial Services Commission Chairman Choi Jong-ku (second from left) on Sunday visits a booth at the Imagine Future 2017, a startup street festival held at Seoul‘s Sinchon. (Yonhap)


The government, driven by the president‘s initiative for inclusive growth, certainly is aware of the problem and of its required role.

“(The government) will play a leading role in improving irrational regulations and unfair incentive systems, in order to create a virtuous funding circle in the startup ecosystem,” the Financial Services Commission Chairman Choi Jong-ku said at a startup street festival on Sunday.

D. Camp, a startup solution provider funded by the Korea Federation of Banks, held Imagine Future 2017 in Sinchon over the weekend, inviting young people to experience and meet with some 111 local startups.

The FSC’s plan includes the establishment of a Fourth Industrial Revolution fund to offer seed money to newly emerged businesses, focusing on those with a high job creating effect.

Experts also underlined the importance of the balance -- that the public sector restrains from excessive interference and the civic sector takes up a bigger role in investing in fast-growing early-stage businesses.

“One of the key factors boosting China‘s drastic advancement in the global market, especially in technology-dominated fields, was the nimble funding capacities from the private sector,” said An Yuhua, professor at Sung Kyun Kwan Graduate School of China.

Citing the case of Chinese fintech giant Tencent, the professor explained how the participation of motivated private investors may make a difference.

”Now ranked in the top cluster in the world‘s internet businesses, Tencent was initially inspired by Korea’s Kakao,“ she said.

”The secret of its growth (which soon beat that of Kakao) lies in the funding environment, especially the crowd of private investors who moved a step ahead of government actions.“

By Bae Hyun-jung (tellme@heraldcorp.com)

The Korea Herald publishes a series of articles looking into the new roles of South Korean startups en route to the ‘fourth industrial revolution,’ and their challenges in securing funds, entering the market and staying in it. This is the first installment. -- Ed.