Startup Industry: "Creating an Exit Ecosystem Is More Important Than Unicorn Development"

Midterm Report Meeting on 'Startup Exit Ecosystem Strategy Research' for the Success of the Digital New Deal

[Asia Economy Reporter Kim Cheol-hyun] Although startups are gaining greater status and influence in the overall economy, concerns have arisen within the industry that the ecosystem's development could be disrupted if exits (Exit, capital recovery) are not activated. While domestic startup policies have focused on nurturing 'unicorns' with a corporate value of 1 trillion won, there is now a need to expand the policy framework to include exit activation.

On the 23rd, the Korea Startup Forum held a mid-term briefing on the 'Startup Exit Ecosystem Strategy Study' and announced these points. The mid-term report presented by Professor Yoo Hyo-sang of Soongsil University highlighted that the domestic startup ecosystem is rapidly growing. As of July this year, there were 758 domestic startups that had secured Series A or higher investments, more than double the 383 startups in the same period in 2018. The number of startups with cumulative investments exceeding 10 billion won reached 242, more than tripling over the same period.

However, the industry recognizes that the exit segment, which operates through the organic combination of innovative entrepreneurs, venture investors, and the exit market, remains unsatisfactory. According to the 'Comparison of Startup Investment Ecosystems in Korea, the U.S., and China' published last year by the Korea International Trade Association's International Trade Research Institute, among 138 Korean startups that received seed or angel investments from 2013 to 2015, only 8 (5.8%) succeeded in exiting. During the same period, 1,064 out of 8,667 U.S. startups (12.3%) that secured investments achieved exits.

In response, Professor Yoo pointed out that given the characteristics of a rapidly growing startup ecosystem based on venture investment, a foundation for promoting exits?such as an active initial public offering (IPO) market and a mature mergers and acquisitions (M&A) market?must be established. Without exits, investors cannot recover their invested funds in startups, resulting in losses and ultimately removing the incentive for investment capital to flow into the startup ecosystem. Professor Yoo stated, "Startups are inherently linked to investment, and this investment presupposes exits. Just as all newly emerged global top 7 companies started as startups, domestic startup exits must drive economic growth."

This argument follows the progression of domestic startup nurturing policies from early-stage startup activation to scale-up, which has achieved certain results. Now, beyond scale-up and unicorns, the ecosystem must complete a virtuous cycle centered on exits. The report stated, "Rather than being fixated solely on the unicorn standard of a 1 trillion won corporate value, various forms of exits should be officially evaluated in the recovery market according to each company's situation and conditions, whether the amounts are large or small."

The report also emphasized the need to enhance global competitiveness since the startup ecosystem knows no borders. It is a reality that many startups that have grown beyond a certain scale have received foreign capital investments, and late-stage startups such as unicorns inevitably consider M&A with overseas companies as a viable exit strategy given domestic conditions. The report said, "Alongside efforts to strengthen the competitiveness of domestic companies and capital markets, a long-term perspective is needed to elevate the international status of the domestic ecosystem through active exchange and cooperation with overseas companies and venture capital."

Accordingly, the startup industry urged the government and the National Assembly to investigate current exit barriers for domestic startups and to promote key tasks such as improving the IPO market and facilitating M&A. The Korea Startup Forum is also planning a program to commemorate startups that have succeeded in exiting, aiming to foster a culture where entrepreneurs who have exited contribute to the virtuous cycle of the startup ecosystem and widely disseminate successful business models and financial strategies. The final report following this mid-term report is scheduled to be released in December, after which recommendations will be finalized and a follow-up briefing held with the government and National Assembly. Choi Sung-jin, CEO of the Korea Startup Forum, emphasized, "Domestic startup nurturing strategies must expand their policy framework to activate exits. The government and National Assembly should honor startups that have succeeded in exiting and work to increase the number of exit cases domestically."