The Era of Global Startups
Currently, global information and communication technology (ICT) companies, such as Google, Apple, Microsoft (MS) and Facebook, rank high on the list of global top 10 companies in terms of market capitalization. Most American startups founded in the last two decades began in Silicon Valley. Both Nest, which was bought by Google for US$3.2 billion (3.7 trillion won) in January 2014, and WhatsApp, which was acquired by Facebook for US$19 billion (20 trillion won) in February 2014, were also startups from Silicon Valley.
As the incumbent government's creative economy policy is in its fourth year now and the domestic startup ecosystem is seeing a quantitative expansion, the Millennial generation, those born after 1980 who were the first to grow up with computers and the Internet in their homes, are seeking to compete on the global stage, including Silicon Valley. They established so-called “born-global” startups that aim to go global from an early stage.
Domestic startup experts point out that it should seek out and promote technology-based startups with competence in the future technology sector, such as artificial intelligence software, the Internet of Things (IoT), cloud computing, big data and mobile, rather than service-based startups which develop mobile and Internet application services, and help them go global, qualitatively changing the domestic startup ecosystem.
However, Korea still has a relatively weak culture of respect for developers and is lack of technology experts in investors including venture capital, and private start-up training institutions. Moreover, U.S. venture capitalists tend to invest in one’s future, like growth potential, while Korean venture capitalists still focus on making profit-oriented investment.
In fact, the combination of a highly qualified talent pool, entrepreneurship, plentiful capital and excellent infrastructure is considered the mechanism that moves the startup ecosystem in Silicon Valley. In particular, it is the consensus of opinion among successful entrepreneurs in Silicon Valley that a developer-centered corporate culture is its core growth engine.
Kim Chang-won, CEO of Tapas Media said, "It is a shame that the investment sector is mostly focused on when talking about the startup ecosystem in Korea. To be sure, making investment to create the startup environment is important. However, it is more important how many brilliant developers the startup has. Silicon Valley was able to eat up the global market with technologies thanks to its developer-centered culture.”
Industry sources say that technical workers rarely receive respect in domestic large companies and even startups. In smaller startups, chief technology officers (CTOs) in particular often have severe conflicts of opinion with chief executive officers (CEOs) who founded the startups. Thus, they have a great difficulty in turning excellent ideas and source technologies into business models.
Recently, the number of tech startups which are founded by former workers at major conglomerates, including Samsung Electronics and LG Electronics, is gradually increasing, but they suffer lack of venture capital and investment institutions which recognize their technologies and make investment to promote them.
“An increasing number of researchers at conglomerates are leaving their companies after they have met the limit in commercializing all their ideas. However, in venture capital companies, there is a lack of experts who can understand their technologies and recognize growth potential,” said Ryu Jung-hee, CEO of Future Play. On the contrary, venture capital companies in Silicon Valley employ many CTO-level technical experts, as shown in the case that Marc Andreessen, co-founder and co-developer of Netscape, established a venture capital firm, he explained.
“Domestic venture capital companies are not aware of the importance of early R&D and have low understanding of source technologies due to the fact that most of their leaders have long experience in finance. So, they tend to invest in service-centered startups like online-to-offline (O2O) and e-commerce companies which have clear indicators, including market share. A large number of tech startups don't even have a chance to attract investment and disappear from the market,” Ryu added.
Most Startups Provide Mobile App Services
According to Korea Venture Business Association (KOVA), there more than 460 venture startups which surpass sales of 100 billion won (US$84.75 million), and their combined sales reach 101 trillion won (US$85.59 billion). Although Korea’s startup ecosystem is settling down like this, there simply aren't enough tech startups which focus on technology. The truth is that most entrepreneurs easily set up a company with an idea to develop a single application. Now, such an ecosystem is needed to change into a system which can create “Korean version of Google” by seeking out and promote tech startups with technical skills.
Lee Hun-soo, head of Silicon Valley Center at Korea Innovation Center (KIC), said, “Korean entrepreneurs tend to found an idea-based startup which can make quick money rather than that with technology which requires the development period and initial investment. They will never be able to survive in Silicon Valley just with a vague “Silicon Valley Dream” and application development ideas alone.” Entrepreneurs around the world gather in Silicon Valley in the U.S. to seek customers, talents and capitals, while Korean startups go to Silicon Valley to just look for capitals.
He said, “Silicon Valley has a lot of customers like early adopters who are interested in new technology, as well as competent developers and venture capital firms. Any company with core technology and a sense of duty gets an opportunity for success, but most Korean startups don’t even have a business model, let alone a localization strategy.”
In addition, domestic venture capital companies are more interested in quick exit from their investments. This is why some say that it is also urgent to reform the domestic startup investment ecosystem. Korean venture capital firms tend to make profit-centered investment, while American ones invest in the growth potential and future.
He also added that public and private programs which select and support tech startups are just one-off thing.
KIC Silicon Valley in San Jose of the U.S., which is run by the Ministry of Science, ICT and Future Planning to help Korean venture firms expand their businesses overseas, recently launched “KIC-Express” program. The KIC-Express Program is a 10 week program in which promising startup firms are selected for concentrated support ranging from business incubation to financing through the evaluation of KIC mentors and venture capital companies in Silicon Valley.
Lee said that most Korean startups offer mobile application services and have no localization strategy and expertise as well as language and cultural barriers. Even they start business in the U.S., they often fail to make it into the mainstream and stay almost always on the periphery.
In this regard, KIC Silicon Valley has strengthened its specialty in the screening stage to select promising startups first. When the creative economy and innovation center in Korea recommends a startup, a technical evaluation team consisting of American college professors and experts evaluates the company based on the latest technology trend in global markets, including Silicon Valley. In addition, a business evaluation team consisting of venture capital firms intensively examines its entrepreneurship and team work.
“The Korean versions of Google and SpaceX could be created just when many tech startups are located and nurtured in the new future technology sector, such as the IoT, big data and cloud computing,” Lee said. “Just as Google took over DeepMind and developed AlphaGo, Korean conglomerates should also establish a practice that makes investment in the future innovation, instead of immediate profit, when pursuing M&A with startups,” he stressed.