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Startups in Korea Still Struggling
Small and Medium Enterprises
Startups in Korea Still Struggling
  • By Jung Min-hee
  • September 23, 2015, 01:00
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The Korean government declared three years ago that it would create a boom for startups. However, many in the field are still saying that the situation is the same as it was 15 years ago.

According to them, the government provides a variety of assistance programs for firms in their early stages, but financial assistance is rarely available after they enter a growth stage. They also point out that a large number of startups are in a handful of industries, such as application development, and this has led to cannibalization, making investment recovery difficult.

“Things may look good on the surface these days, but many startups actually don’t think so,” McKinsey Consulting partner Kim Joo-wan said on Sept. 22. According to him, a couple of government programs provide 30 to 70 million won (US$25,250 to $58,930) for an average startup in its initial stage nowadays, but funds of about 100 to 300 million won (US$84,225 to $252,558) required for product marketing in the growth stage is still hard to get. “Most startups in Korea run into financial difficulties about six to 12 months after starting their business,” he explained.

It is angel investors that those startups resort to in order to deal with this pitfall. However, many angel investors are thinking that Korea is a less attractive investment destination, where IPOs and M&A have yet to be facilitated. Statistics on Korean startups’ success cases based on M&As are not available yet. It is estimated that an average of 12 years are required for a newly established company to reach an IPO. In contrast, the length of the period is 3.9 years in China, and American startups spend an average of five years between business establishment and M&A.

“In the United States, acquirers purchase 100 percent of the stocks of the firms they take over, but minority shareholders such as angel investors are deserted, and only the rights of management are taken during M&As in Korea,” said TransLink CEO Heo Jin-ho, continuing, “The minority shareholders can enjoy no profits at all before IPO.”