"One in Four Startups Considering Overseas Relocation"
Ranked 46th in 'Fear of Startup Failure' Among 47 Countries
"Activation of M&A Market, Easing of CVC Investment Restrictions"
Fear of startup failure among Korean companies has been found to be among the highest in the world. The 'Tada incident,' which involved a 3-year and 7-month legal battle over unlicensed taxi operations, had an impact. There are calls to revitalize the mergers and acquisitions (M&A) market to induce a virtuous cycle centered on private investment rather than policy funds.
The Korea International Trade Association (KITA) announced on the 14th that it held the '7th Trade Industry Forum' at Trade Tower in Samseong-dong, Gangnam-gu, Seoul, to discuss the startup ecosystem. About 80 participants from industry, academia, and research attended the forum.
Jung Manki, Vice Chairman of KITA, said that to create a startup founding and growth ecosystem, open innovation must be increased and barriers to entry into the public market lowered. Regarding open innovation, Vice Chairman Jung said, "Among the Forbes Global 500 companies, 68% of the top 100 have strategic alliances with startups and open innovation."
He emphasized the need to eliminate the practice of evaluating startup public institution investment procurement mainly based on sales revenue. Although the size of Korea's public procurement market is 184 trillion won, startup innovation procurement accounts for only 0.34%, which is lower than countries like the Netherlands (2.5%) and Finland (10%). Vice Chairman Jung said, "We should take the example of the Spanish Port Authority, which involves startups in port system improvement projects without sales restrictions, as a lesson."
On the afternoon of the 1st, a car with the Tada logo is passing through the Sejong-daero intersection in Seoul. [Image source=Yonhap News]
The startup founding and growth ecosystem was found to be poor. Kim Mikyung, Head of KITA’s Startup Growth Support Office, reported in her presentation on 'Challenges for the Development of the Korean Startup Ecosystem' that one in four domestic startups is considering relocating overseas. Kim said, "Among the global top 100 unicorn companies in 2017, less than half can fully operate their business domestically," adding, "Innovative services such as the vehicle-hailing service Tada and the shared accommodation service Airbnb are either banned or operated under severe government regulations." Unicorn companies refer to unlisted innovative companies valued at over 1 trillion won.
Kim stressed the need to revitalize the M&A market to increase private capital for startups. She said that for founders who have successfully recovered investment funds to reestablish and reinvest, the M&A market must expand. Above all, cultural and environmental factors that hinder innovation must be improved. She said, "In a 2021 global entrepreneurship survey of 47 countries, Korea ranked 46th in fear of failure and 35th in ease of starting a business," adding, "Korea is closer to Japan, which avoids risk, than to the U.S., which tolerates failure and supports re-challenges."
Forum participants urged regulatory improvements and highlighted promising startup sectors. Kim Seonghoon, a lawyer at Mission Law Firm, said, "There is a global competition for regulatory reform," adding, "We need to enhance regulatory innovation responsiveness so that the state can quickly respond to public interest infringements caused by new innovations." Lee Yonggwan, CEO of Bluepoint Partners, said, "AI, robotics, and secondary battery deep-tech startups are growing through fundraising," and added, "Prospective founders and early-stage startup managers should consider population decline, climate-related regulations, economic bloc formation, and innovative technologies."
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