[K Startup Great Transformation] To Overcome the 'Brief Venture Boom'... Must Clear 3 Hurdles

Government Ministries Must Lift 'Complex Regulations' at Once
Guarantee Autonomy with Minimal 'Pinpoint Regulations'
Development Workforce Burden Concentrated Only on Large Corporations

"There is no new business that can be done by simply lifting one regulation. The most difficult part was persuading officials from each relevant ministry one by one due to the tangled 'complex regulations'." (Kwon Haewon, CEO of Paycock)

"Startups that cannot afford high salaries must attract talent through stock options. We need to increase IPO opportunities for startups to raise the value of stock options and attract excellent talent." (Lee Jungmin, Secretary General of the Korea Venture Business Association)

"Startups armed with high-risk, high-growth business models grow through investment, and typically, these investments are made with the expectation of realizing financial gains through the startup's exit." (Choi Sungjin, CEO of Korea Startup Forum)

Although venture investment has reached an all-time high and the entrepreneurial spirit is heating up, marking the arrival of the 'Second Venture Boom' era, members of the venture and startup ecosystem cannot easily smile. Voices from the field express an urgent need to overcome three hurdles?regulations, manpower, and investment?before the development of 'K-Startup' can truly take off. There is also concern that without securing the driving force to sustain the venture boom, the 'venture dark age' of the 2000s could return.

Unable to Launch Services Due to Regulations

Kwon Haewon, CEO of fintech company Paycock, told Asia Economy, "For venture companies to pursue new businesses, deregulation is of utmost importance." Paycock developed a contactless simple payment technology that replaces existing card payment terminals with smartphone applications, reducing sellers' cost burdens. Although they have platform technology that enables ordering, payment, and delivery with a single QR code, they cannot officially launch the service due to overlapping complex regulations. CEO Kwon said, "Smartphone app payment services became possible through the regulatory sandbox in 2019, but it is no more than a 'taste' of regulatory reform," adding, "For the entire business model to function, regulations scattered across ministries must be lifted all at once." He explained, "Close communication between the public and private sectors is crucial, but since the COVID-19 outbreak last year, exchanges between Sejong City ministry officials and industry stakeholders have decreased, widening the gap in understanding."

Not only Paycock's case but also excessive government attempts ignoring market logic, such as the Online Platform Fairness Act and the institutionalization of profit-sharing systems, are pointed out as factors hindering the sustainability of the second venture boom. A venture company official said, "Regulations created to control large online platform companies will harm small and medium platforms," and argued, "Management autonomy should be guaranteed through minimal 'pinpoint regulations' that prevent illegal acts like collusion among companies." A representative of an accelerator company said, "Like the 'Tada controversy,' companies that have already grown significantly often face intertwined conflicts of interest and legal issues," adding, "The government needs to work on resolving conflicts of interest from the early growth stages of startups."

Polarization of Startup Workforce

Alongside regulations, startup CEOs recently unanimously cite 'manpower shortage' as their biggest challenge. According to the '2020 Venture Business Detailed Survey' conducted by the Korea Venture Business Association, more than half (52.8%) of venture companies responded that securing R&D personnel is the most difficult. As companies offering exceptional conditions or famous startups are preferred, the manpower shortage in early-stage startups is intensifying, showing a clear polarization phenomenon. Kim, CEO of a B2B startup, said, "To expand the company, good talent must come in, but they are being taken by IT giants or global companies," adding, "Even if they join, the reality is that after working for two or three years and gaining skills, they look for other companies."

Startups unable to offer high salaries should be able to recruit excellent talent by granting stock options, but this is also not easy. According to last year's detailed venture business survey, only 2.4% of companies were implementing stock options. A sample survey of about 30,000 corporate entities not using stock options cited reasons such as lack of awareness about the system (48.6%), no advantage as a performance reward method for unlisted companies (31.0%), and complicated systems and administrative procedures (12.2%).

Lack of Early-Stage Investment... "Technology Ventures Need Long-Term Investment"

Investment issues faced by startups recently are closely related to manpower shortages. While investments may pour into startups that have grown enough to show visible profit generation, early-stage investments are decreasing, showing a polarization phenomenon. According to the Korea Institute for International Trade and Commerce, the proportion of early-stage investments (25.2%) in startup investments in Korea during the first to third quarters of last year decreased by about 20 percentage points compared to the same period the previous year. Conversely, the proportion of late-stage investments (72.9%) increased by about 20 percentage points. A startup CEO said, "It is a reality that technology-based ventures requiring long-term investment find it difficult to receive investments."

Given this situation, it was found that 70% of startups close within five years of founding. According to the Ministry of SMEs and Startups' 'Startup Survival Rate Status' data, the five-year survival rate of domestic startups as of last year was only 29.2%. This means that less than 30% of startups survive five years, and two-thirds fail. Compared to the average survival rate of over 40% in major OECD countries, this is more than 10 percentage points lower. Lee Jungmin, Secretary General of the Korea Venture Business Association, emphasized, "If the first venture boom had continued, Korea would have become the world's largest venture powerhouse," adding, "Now is not the time to pop champagne but to discuss the sustainability of the second venture boom."