Investor Sentiment Cooled by Excessive Regulations
The operator of van-hailing app Tada has been indicted on charges of violating the transportation law, becoming the latest victim of Korea’s stifling regulations on mobility startups.
Mobility-related regulations remain unchanged despite the Korean government’s repeated pledges of reform. As a result, investor sentiment has cooled.
According to the venture capital (VC) industry sources, not a single VC company has made an investment in Korean mobility startups such as Tada since last July.
Some startups that jumped into the carpooling business are said to have lost tens of billions of won they have received from investors but cannot think of restarting business as investor sentiment is low.
A foreign private equity fund has reportedly decided to invest tens of billions of won in SoCar, the parent company of Value Creators & Co. (VCNC) that operates Tada, but has recently put its investment plan on hold after finding that the Korean government is unlikely to ease regulations on ride-hailing services.
Choi Sung-jin, head of the Korea Startup Forum (KSF), expressed frustration on his Facebook, saying “Due to growing business uncertainty, investors hesitate to put their money into mobility startups like Tada.” He also expressed discontent with the prosecution’s indictment of Tada, saying “If Tada is forced to stop its service, the case will be written down as yet another repression against mobility startups.”
Prosecutors indicted Park Jae-uk, CEO of VCNC, and Lee Jae-woong, CEO of SoCar, for violating the Passenger Transport Service Act.
Stringent regulations are thwarting investments in innovative startups. The Ministry of SME and Startups has repeatedly promised regulatory reform to increase investment in startups, but little change has been made. The ministry does not even know the size of investments made in new mobility firms.