Five out of 10 startups shut down within two years after their foundation while only one in three (29.2 percent) sustain for five years, a survey shows.
The number of new startups nudged up 0.7 percent in 2018 from the previous year, while the number of companies that went out of business in 2017 increased by 11.5 percent from the year before. Nine out of 10 startups launched last year were one-person enterprises run by the founder alone without any employee hired, and seven out of 10 had an annual turnover of less than 50 million won (US$42,000).
Korea Statistics announced the result of “Business Demography Statistics in 2018” on Dec. 12. The data showed that among profit enterprises, the number of active enterprises amounted to 6.25 million in 2018, rising by 199,000 (3.3 percent) from 2017. Corporate enterprises totaled 657,000, 5.7 percent up from the previous year, while individual enterprises amounted to 5.59 million, a 3 percent increase from 2017. The number of startups was 920,000 last year, an increase of 7,000 (0.7 percent) from the previous year. Meanwhile, the number of defunct enterprises was 688,000 as of 2017, increasing by a whopping 72,000, or 11.5 percent from the previous year.
Death rate by year showed a double-digit growth rate annually: 12.4 percent in 2013; 14 percent in 2014; 11.5 percent in 2015; and 10.8 percent in 2016. In particular, the death rate of sole proprietorships is much higher than that of corporate enterprises. As of 2017, the death rate of sole proprietorships stood at 12.1 percent, compared to corporate firms’ 6.7 percent.
In terms of their survival span, about a half of startups failed to sustain more than two years. Besides, three out of 10 startups closed down within five years.
As for the share of startup enterprises by industry, real estate accounted for the largest share of 25.5 percent, followed by wholesale and retail trade (21.8 percent), and accommodation and food service (17.2 percent). Of them, accommodation and food service recorded the lowest five-year survival rate (19.1 percent), followed by art, sports and recreation services (18.4 percent), and finance and insurance (17.8 percent), all of which fell far short of the average. Meanwhile, electricity, gas, and water supply (76.1 percent), transportation (40.3 percent), and manufacturing (39.9 percent) recorded relatively high five-year survival rates.