[Startup Struggle②-1] The Dream of Decacorn Kneeling Before Net Regulations

11 Korean Unicorns... 31 Domestic Companies Facing Regulatory Restrictions Among Global Top 100 Startups

#1. 11. This is the number of unicorn companies (unlisted ventures valued at over 1 trillion won) in South Korea. Starting with Coupang and Yellow Mobile in 2014, followed by L&P Cosmetic, Krafton, Viva Republica, Woowa Brothers, Yanolja, Wemakeprice, GP Club, and recently Musinsa and Aprogen, a total of 11 companies have been listed as unicorns by the global market research firm CB Insights. On the 3rd, Park Young-sun, Minister of the Ministry of SMEs and Startups (hereafter, the Ministry), emphasized at the first executive meeting of the new year, "We will promote entry into the top four venture powerhouse countries by implementing the K-Unicorn Project to produce 20 unicorn companies by 2022."

#2. 31. According to the 'Startup Korea for Revitalizing the Startup Ecosystem' report jointly released by the Asan Nanum Foundation and Startup Alliance, among the top 100 global startups by cumulative investment as of 2019, 31 companies faced business restrictions in Korea due to regulations. Thirteen companies could not conduct any business domestically due to current regulations, and 18 could only operate conditionally. Based on the investment amounts of these top 100 startups, more than half (53%) are blocked by regulatory barriers and cannot properly enter Korea. Compared to the same survey in 2017, when 13 companies were unable to operate and 44 could only operate conditionally, this number has somewhat decreased. However, regulations still continue to hinder startups.

The numbers of 11 domestic unicorn companies and 31 global startups restricted by regulations in Korea starkly illustrate our current position regarding startups, which have emerged as the most promising economic agents in the global market. While countries worldwide regard startups as new economic engines and are fostering them, and our government is actively supporting them, on the other hand, dense regulations pose a risk that this 'new growth engine' could be extinguished at any time.

◆Startups are a global 'blue ocean' = Startups founded on innovative technologies and ideas have emerged as key players expected to drive the economy anew in the global market. Especially, startups worldwide are leading technologies related to the Fourth Industrial Revolution. According to Gartner, the proportion of startups among promising companies in various fields is 60% in cloud, 85% in big data and artificial intelligence (AI), 87% in blockchain, 54% in the Internet of Things (IoT), 83% in autonomous driving, and 50% in 3D printing. This means startups are at the core of the Fourth Industrial Revolution. This has led to explosive investment growth in startups worldwide and efforts to build ecosystems. Seo Dae-hoon, Senior Researcher at the Future Strategy Development Department of KDB Future Strategy Research Institute, explained, "As startups have been recognized as new growth engines to overcome the stagnant economy, the importance of creating startup ecosystems has increased," adding, "Various support policies for startups have emerged, and startup investment amounts are increasing globally."

In fact, according to consulting firms PwC and CB Insights, startup investment increased from $4.53 billion in 2012 to $20.7 billion in 2018, and last year, investments reached $50 billion by the third quarter alone. Based on this rapid increase in investment, overseas markets including the U.S. have seen the emergence of 'decacorns,' startups valued at over $10 billion, surpassing unicorns.

Moreover, startups play a significant role in value creation and employment in the domestic market. As of 2018, total sales of venture companies including startups amounted to 192 trillion won, ranking second in Korea's business sector after Samsung. The average sales per company were 5.32 billion won, a 7.9% increase from the previous year. This growth rate is higher than that of large corporations (2.7%) and small and medium enterprises (5.9%). This trend has continued since 2009. The employment creation effect of startups also far exceeds that of large corporations. At the end of 2018, total employment in venture companies was 715,000, exceeding the combined workforce of Korea's four largest conglomerates, which was 668,000. Particularly, as talent exchanges between startups and large corporations become more active, startup innovation is spreading throughout the industry.

◆5th in the world for unicorn ownership = In line with this trend, active startup nurturing policies have been promoted domestically, resulting in an increase of five unicorn companies last year, bringing the total to 11. This growth rate is faster compared to the addition of three companies in 2018. Having 11 unicorns ranks Korea 5th globally. Minister Park Young-sun of the Ministry said, "The speed of unicorn company births is accelerating. In the past, it took more than a year on average to add one unicorn, but in 2018, three were newly listed, and five this year," adding, "The increase in the number of unicorn companies is evidence that Korea's startup founders and venture investors' sweat and efforts are maturing the venture ecosystem."

However, the number of unicorn companies still lags far behind the U.S., which has 210, and China, which has 102. This is why government support for startups continues to expand. According to a survey by the Ministry on startup support projects by government departments this year, 16 ministries and 90 projects will provide a total of 1.4517 trillion won in support. This is a 29.8% increase compared to 1.1181 trillion won last year. Especially this year, to expand startup nurturing infrastructure, 'Maker Spaces'?places where anyone can freely implement creative ideas?will be established nationwide. Additionally, to promote startup globalization and build global networks based on the advanced startup environments of Northern Europe, Korea Startup Centers (KSC) will be opened in Sweden and Finland. The Gwangju Startup Camp will also be established as a space to nurture innovative local entrepreneurs.

◆No future for startups without regulatory innovation = However, although the regulatory environment surrounding our startups has recently shown signs of improvement, it is still considered lagging by global standards. According to the Global Entrepreneurship Monitor (GEM), Korea's ranking for entry regulation intensity rose from 49th in 2017 to 38th in 2018. While this was a meaningful leap, Korea remains in the lower ranks. This situation has led to global innovative startups facing business restrictions in Korea due to entry regulations. For example, ride-sharing is blocked by the Passenger Transport Service Act, accommodation sharing by the Public Health Control Act, and telemedicine by the Medical Service Act.

The startup industry is concerned that such entry regulations could ultimately limit the growth potential of Korean startups. Lim Jung-wook, Director of Startup Alliance, said, "Over the past decade, Korea's startup ecosystem has made remarkable progress both quantitatively and qualitatively," emphasizing, "To take a further leap and become a globally recognized startup powerhouse, bold regulatory reforms and globalization are necessary."