[K Startup Great Transformation] 'Exit = Mukti' Formula is NO, We Must Create a Reinvestment Ecosystem

Unicorn Companies Concentrated in E-commerce... Corporate Value Also Below Industry Average
M&A is a Shortcut to Ecosystem Virtuous Cycle
"Corporate Tax Benefits and Other System Improvements Needed"

Amid growing interest in startups driven by the second venture boom, there are calls within the industry to expand policy support focused on exits. Photo by Gettyimage

[Asia Economy Reporter Kim Heeyoon] We live in an era where startups with unfamiliar names are recognized for their value within a few years and become unicorn companies valued at over 1 trillion won. The Ministry of SMEs and Startups counted 13 domestic unicorn companies last year. While government policies are focused on nurturing prospective unicorns and baby unicorns, there are growing calls within the industry to expand policy support centered on exit strategies.

Recently, the Ministry of SMEs and Startups announced that the number of startups surpassed 120,000 last year, and the number of unicorn companies increased more than sixfold from 2 in 2016 to 13 last year. This reflects the results of the second venture boom in statistics. However, there are criticisms that the industrial sectors of domestic unicorn companies are limited and their corporate values are relatively small.

According to the US IT media CB Insights, there are 500 unicorn companies worldwide, with US companies ranking first at 242, followed by China with 119. Korea ranks sixth with 11. Over the past five years, a global unicorn company has emerged every three days, and 92 companies newly became unicorns last year alone.

Korea ranks sixth in terms of unicorn ownership, but the industrial sectors are concentrated in e-commerce. In terms of corporate value, except for Coupang and Krafton, companies fall below the industry average. Ultimately, the startup ecosystem that enables a virtuous cycle of startup (investment) → growth → exit → reinvestment is not functioning smoothly, and market attention is focused only on limited unicorns.

Recently, there has been a growing call to improve the perception that links domestic startups being acquired by foreign capital or listed on overseas stock exchanges to controversies over the nationality of companies, especially within the startup ecosystem. Photo by Tipstown

Exit Creates Chain Entrepreneurship and Angel Investment to Grow the Ecosystem

Um Suwon, CEO of AI-based advertising solution company Adriel, said, "There are various perspectives on exit in the market, but it is an essential model for startups as it recognizes the company's value and serves as a foundation for further growth." CEO Um is an 'exit experiencer' who founded the AI-based financial analysis solution startup Solidware in 2014 and sold it within eight months, and is now running his second company.

Park Jaeseung, CEO of VisualCamp, who left a corporate executive position to challenge entrepreneurship, emphasized, "The proper exit model for startups is not an initial public offering (IPO) but the activation of small mergers and acquisitions (M&A)." Park said, "Although there is a technology special listing system, it is too distant a story for startups. In reality, various small M&As should take place, but large corporations tend to undervalue the technologies owned by startups. The government needs to step in to establish a system that provides tax benefits and other support when mid-sized companies acquire government-recognized or certified startups. Such institutional improvements can change perceptions."

Some negative views on exit remain, such as interpreting the M&A of Baedal Minjok and Coupang's US listing last March as 'muk-twi' (eat-and-run). In particular, there is a strong call to improve the perception that links domestic startups being acquired by foreign capital or listed on overseas stock markets to issues of corporate nationality.

Professor Yoo Hyosang of Soongsil University's Department of Economics said, "Perceiving startup exits as 'muk-twi' is a major obstacle to ecosystem activation. As seen in Silicon Valley, when exits occur, startup members become serial entrepreneurs or angel investors who create new startups or invest in promising startups, fostering a so-called 'virtuous ecosystem cycle' that should be actively encouraged."

He added, "In Korea, due to such negative views, exits are not actively happening, so venture capital (VC) rarely makes bold investments, resulting in only the expansion of the size of the Korea Fund of Funds. Given that public investment accounts for nearly 70% of current startup investment ratios, policies should be implemented to expand the private sector's share, including regulatory improvements related to corporate venture capital (CVC) and lowering the IPO threshold."