Startup Sector Sighs Over Kakao Incident... Concerns Grow That Investors May Leave Due to Platform Regulations

Confusion Over Sudden Policy Shift... Concerns Over Investment Contraction
"Premature Regulations Like Onplebeop Hampering Startup Growth"

[Asia Economy Reporter Yuri Choi] The startup sector is on edge as regulatory moves targeting platforms gain momentum following the Kakao outage incident. With a chilly funding market amid an economic downturn, there are concerns that additional regulations will further shrink investments. In particular, voices are growing louder warning of side effects as policies abruptly shift, including the revival of regulations that could hamper startup growth.

According to political circles on the 19th, the government and the National Assembly are rolling out various platform regulation bills. These include the amendment to the Broadcasting and Communications Development Basic Act designating private data centers as national disaster management facilities, the Online Platform Fairness Act (Onple Act), and efforts to push anti-monopoly legislation. These moves follow President Yoon Seok-yeol’s remarks after the Kakao incident that "the state must take necessary measures."

The startup community is initially bewildered by the sudden change in atmosphere. The Yoon administration, which had advocated for platform self-regulation, has sharply shifted to comprehensive regulations after the Kakao crisis. The Onple Act, which had been effectively shelved under the current government, is now being reinforced, and the amendment to the Broadcasting and Communications Development Basic Act, which the National Assembly had scrapped two years ago, is being re-pursued?marking a 180-degree turnaround.

The industry fears that this regulatory climate alone could dampen investment. Given the many internal and external challenges such as global interest rate hikes and economic downturns, regulations represent yet another uncertainty. A startup industry insider with a venture capital (VC) background said, "Although it’s hard to quantify, regulations themselves are another form of uncertainty, so investors tend to view them negatively."

For emerging companies, blocked investments mean a direct hit. They may have to shut down operations without even launching their services. The startup sector is already seeing a surge in restructuring and closures as the investment market freezes. According to Startup Alliance, investment in September was 381.6 billion KRW, a sharp 55.7% drop compared to the previous month’s 836.8 billion KRW.

A CEO of a big data company who secured investment in June said, "I barely caught the last train for funding, but overall, I see the first half of next year as the biggest crisis." He added, "The mood is to somehow hold on until then, but with regulatory issues emerging, the future is unpredictable."

There are also concerns that the government is introducing regulations that do not fit the current situation. The Onple Act is a prime example. It is difficult to accept the reintroduction of the Onple Act, which regulates platform operators’ forced purchases and management interference with tenant companies, as a measure to prevent incidents caused by Kakao’s insufficient recovery actions such as data duplication.

Choi Sung-jin, CEO of Korea Startup Forum, criticized, "The Onple Act was a policy we opposed because it could become a barrier for platform startups entering the market, even more so than Naver or Kakao." He added, "While it is necessary to prepare countermeasures for the Kakao incident, the causes of the problem should be examined rationally."