Startup-Venture Policy
On occasion of the annual Venture-Startup Festival this year, which is the largest business venture-and startup-related event in South Korea and celebrates its 20th anniversary, Business Korea had an exclusive interview with Kim Hyoung-young, Director General of Business Startup and Venture Bureau at Small & Medium Business Administration in order to hear his thought on the policy performances of startups and venture firms. He said there have been showed a rapid growth in startup and venture sector quantitatively as well as qualitatively. He added his bureau will accelerate promotion of startups and ventures through the more sophisticated means such as the Tech Incubator Program for Startups (TIPS) and Accelerator Registering Program. Following are some excerpts from the interview.
Please explain this year’s qualitative and quantitative trends of South Korean venture firms and startups. Are there sufficient venture capital funds for their growth?
Last year, the number of venture firms in South Korea broke the 30,000 mark to show a 15-fold increase in comparison to that recorded in 1998, when South Korea conducted its first venture firm certification. In addition to this rapid quantitative growth, they are showing excellent results in terms of sales, operating profits and employment, too. Their operating profit-to-sales ratio reached 5.8% in 2014, when those of large corporations and smaller companies reached 4.4% and negative 3.1%, respectively. The rate of increase in their employment was 9.1% between 2003 and 2014 while the figures were 2.1% and 2.7% in the respective cases of large corporations and smaller companies.
The South Korean government has provided various types of assistance in order to help finance venture funds and startups, examples of which include a fund of funds for providing venture capital funds with seed money. As a result, a venture capital fund of 2.43 trillion won (US$2.18 billion) has been raised until October this year and this year’s total is likely to exceed the previous high, 2.71 trillion won (US$2.43 billion), recorded last year. Under the circumstances, conditions for investment in startups and venture firms are likely to show a continuous improvement.
In addition, venture investment in South Korea is continuing to grow. It totaled 1.38 trillion won (US$1.24 billion) in 2013 and rose to 1.64 trillion won (US$1.47 billion) in 2014 and 2.09 trillion won (US$1.88 billion) in 2015. This year’s total is estimated at around two trillion won (US$1.8 billion).
What are the sizes of foreign investment attraction and export by South Korean startups and venture firms and what programs are currently available to assist in these activities?
South Korean startups are attracting more and more investment abroad these days. For example, Bagel Labs, which provides smart tape measures and length-based big data platforms, succeeded in raising a fund of US$1.795 million on the Kickstarter crowdfunding platform.
During the first 10 months of this year, approximately 8,700 venture firms in South Korea reached US$14.4 billion in total exports, equivalent to 3.6% of South Korea’s total exports and 18.1% of South Korean small and medium-sized enterprises’ total exports for the same period. The venture firms’ total exports increased 2.6% from a year earlier whereas the total exports by the country and the SMEs fell 8% and edged up 0.2%, respectively.
Recently, the Venturenara was opened as a shopping mall for government procurement as a result of collaboration between the Public Procurement Service and the Small & Medium Business Administration. It is expected to function as a supplement to the Narajangteo Shopping Mall serving the same purpose so that venture firms and startups can have more business opportunities with regard to government procurement.
In addition, the Global Venture Week as an annual event associated with the Venture-Startup Festival has been held so venture firms and startups in the country can meet with more foreign investors and buyers. This year’s Global Venture Week is scheduled to kick off on December 2 and more than 120 firms are expected to have business meetings with over 100 foreign investors and buyers.
An increasing number of South Korean companies are targeting global markets from the outset these days. How is the government assisting in their efforts for globalization?
Two of the biggest hurdles in front of venture firms and startups aiming for globalization are the lack of market information and the lack of financial resources.
In this regard, the government is running various programs so that such companies can have help from its specialized organizations. This year, accelerators both at home and abroad have supported 130 or so startups’ on-site training, global marketing strategy formulation, investment attraction, sales channel expansion, etc.
The government is providing assistance by making use of the global networks of foreign venture capitals participating in its funds for startups and venture firms, too. Furthermore, it has strengthened the startup support function of its venture and startup investment centers abroad and arranged meetings between foreign venture capitals and South Korean companies. At the same time, major corporations are providing the same assistance for about 400 promising startups by utilizing their global networks. Such startups can cooperate with Centers for Creative Economy & Innovation, which provide expert mentoring and support for globalization for selected ones.
Accelerator registration becomes effective on November 30. What are the details of the program?
Accelerators, which started in the United States in 2005 and have become a familiar concept, can be defined as a group of agencies for startup promotion that finds firms with brilliant ideas in their early stages and provides them with angel investment, office spaces, mentoring, incubation services, etc.
The Small & Medium Business Administration’s accelerator registration is for the registration of successful venture investors and individual investors as accelerators. In the framework of this program, they can take part in the government’s startup-related projects such as the Tech Incubator Program for Startups on condition that they invest in startups and they can benefit from various incentives such as the exemption of transfer gains and dividend income taxes.
Investors wishing to register themselves as accelerators can do so with the Small & Medium Business Administration after satisfying certain requirements such as a minimum capital of 100 million won and at least two employed experts.
What is the rate of survival of South Korean startups? How is the government helping them so they can survive the so-called valley of death?
Unfortunately, the ratio of startups founded by highly-educated experts and more likely to be successful is still low in South Korea and a large number of South Korean startups are failing to overcome the valley of death, that is, their third to seventh year in business. In 2013, only 29% of five-year-old startups survived in South Korea. For reference, the ratio was 45.8% in the United States in the same year and 44.4% in Europe in 2012.
In order to raise the survival rate, the focus should be shifted from startups in the red ocean such as food service and lodging toward tech-oriented startups led by highly-educated personnel. In this context, the government is encouraging the latter by means of the Tech Incubator Program for Startups (TIPS), its startup-oriented college program and the global networks of international venture capitals. At present, 51.3% and 28.8% of the 591 persons who started their firms in the Tech Incubator Program are those with a master's or doctoral degree and those who previously worked for major corporations, respectively.
The South Korean government will keep trying so that more and more startups can overcome the valley of death. What it is currently planning on includes government funds, R&D assistance, business model improvement and mentoring by market experts.
This year’s Venture-Startup Festival takes place from December 1 to 4. What are the accomplishments of the Venture-Startup Festival and what is the focus of this year’s event?
The annual Venture-Startup Festival, which celebrates its 20th anniversary this year, is the largest business venture- and startup-related event in South Korea.
This year’s Venture-Startup Festival is made up of an awarding ceremony for those who contributed to the growth and development of the domestic venture and startup ecosystem, an exhibition of venture firms’ and startups’ products, multiple conferences and seminars, etc.
More than 550 booths are to be run for the exhibition of over 500 companies’ products. In addition, a number of hands-on experience zones will be installed so attendees can experience the high-quality products that resulted from the government’s policy for business venture and startup promotion.
This year’s event has the four keywords of creativity, innovation, global and challenge, which are essential elements for every venture firm and startup. Exhibition zones reflecting the respective keywords are to be individually run.
Concurrent events include the Day of Second Chance, in which entrepreneurs share their experience of failure and have pep talks with each other, and the One-person Startup Forum as a free-talk session for successful business foundation. As mentioned above, the Global Venture Week is held, too.