[Changing the World M]⑧ The Rising Status of the Startup Ecosystem... A Strong Boost from the 'Startup Craze'

On the 14th (local time), at the large exhibition hall 'Expo Porte de Versailles' in Paris, France, the 'Viva Technology' event opened, where Korea was invited as the 'guest of honor.' Now in its 8th year, this event is a global startup exhibition where startups from around the world meet European investors. This year, 2,500 startups and various tech companies from 140 countries participated. Jean-No?l Barrot, French Minister of Digital and Telecommunications, said in his opening speech, "This year's event is the 'Year of Korea.' France should learn from the success of the Korean startup ecosystem." Until the early 2000s, Korea was a barren land for startups, but it has now gained global recognition for its status.

The government led the 'venture boom' in the early 2000s

The status of the startup ecosystem has rapidly increased over the past 30 years. Until the early 1990s, when the startup and venture ecosystem was in its infancy, these entities were mainly perceived as suppliers of manufacturing parts. However, from the late 1990s after the IMF financial crisis to the early 2000s, the first venture boom drew attention as the main agents of innovation. The establishment of the KOSDAQ market in 1996 made fundraising easier, and the IT industry rapidly grew in scale as internet penetration became widespread.

In particular, active government support further accelerated the growth trend. At that time, the government promoted policies to nurture the startup ecosystem as a card to overcome the stagnant economy. After taking office, President Kim Dae-jung announced a policy to support the establishment of 20,000 venture companies over five years and to secure 900 billion won in venture support funds. In fact, in 2000, 211.5 billion won and in 2001, 220 billion won were provided as startup funds, and it was allowed to register laboratories as factories to enable professors and researchers to start businesses. This helped those armed with technology and entrepreneurial spirit to establish companies smoothly.

Additionally, for already established ventures, 1 trillion won of venture investment funds were created to prioritize investment in companies with advanced technology and regional enterprises. The requirements for venture companies to be listed on the KOSDAQ market were relaxed to allow high-growth potential advanced technology ventures to enter. Tax incentives were also generously provided. Companies confirmed as ventures within two years of establishment received a 50% reduction in income and corporate taxes for six years. Various tax support policies were implemented, such as a 30% income deduction for engine and angel investment groups on their investment amounts.

However, the venture fever quickly subsided shortly after. This was due to the exposure of political power and venture entrepreneurs' involvement in scandals such as the Jin Seung-hyun gate, Lee Yong-ho gate, Jung Hyun-joon gate, and Yoon Tae-sik gate, known as the four major venture gates. Subsequently, the perception of 'venture = fraudster' strengthened, causing investments to dry up, and the government introduced measures to normalize venture companies and improve public perception.

From 'government-led to private collaboration'... the startup fever revived

View of the Startup Incubation Center
[Photo by Asia Economy DB]

In the mid-2010s, Korean society entered the era of the 'second venture boom.' The startup ecosystem blossomed again as government startup support policies became active. In 2014, the Park Geun-hye administration invigorated the startup ecosystem by establishing the Creative Economy Innovation Centers under the Ministry of SMEs and Startups, institutions dedicated to nurturing startups.

Notably, the 17 Creative Economy Innovation Centers nationwide established a one-on-one dedicated support system linked with major conglomerates. This shifted from government-centered policies to expanding scale and effectiveness through collaboration with the private sector. For example, SK Group manages Daejeon and Sejong centers, Samsung Group manages Daegu, LG Group manages Chungbuk, and Hyundai Motor Group manages Gwangju.

This was further enhanced under the Moon Jae-in administration, which strengthened startup support functions. Despite being empowered by the candlelight protests, the Moon administration prioritized practical benefits over ideological disputes by sustaining the Creative Economy Innovation Centers. In 2018, the main department was transferred from the Ministry of Science, ICT and Future Planning to the Ministry of SMEs and Startups, solidifying the centers' role as accelerators that nurture local startups and investment functions. According to the Ministry of SMEs and Startups and the Korea Institute of Startup & Entrepreneurship Development, the centers attracted startup investments worth 25.607 trillion won over the past eight years and created 38,769 new jobs.

Subsequently, the model evolved into collaboration with local governments. The top-down support model of the Creative Economy Centers, which matched large corporations, was transformed into a bottom-up win-win cooperation center autonomously involving local governments, mid-sized and venture companies, and universities. New functions such as labor and tax support were added for systematic startup support.

Banks also competed to develop startup support programs and fintech labs. The Korea Development Bank annually hosts the startup exhibition 'NextRise,' and the six major commercial banks?Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank, NongHyup Bank, and Industrial Bank of Korea?support various programs to nurture promising startups.

'Pulling and pushing' senior entrepreneurs

Angel investments by the 'first generation' of entrepreneurs have become important seeds for ecosystem growth. Lee Jae-woong, CEO of Socar, left Daum in 2007 and established the investment company Sopoong in 2008, actively nurturing the next generation. He especially shows interest in social venture companies that create social value. In 2014, he joined forces with other first-generation venture entrepreneurs. Together with Kim Beom-su, chairman of Kakao; Kim Jung-ju, chairman of Nexon; Kim Taek-jin, CEO of NCSoft; and Lee Hae-jin, founder of Naver, they raised funds to create the venture charity company 'C Program.'

Success stories continue to emerge. Kakao, led by Chairman Kim Beom-su, invested 3.3 billion won in Dunamu in 2015. Dunamu later succeeded with Upbit, the country's number one cryptocurrency exchange, and was once valued at over 10 trillion won. Kim Bong-jin, the initial chairman of the Korea Startup Forum, is also actively making angel investments in various domestic startups.

Investment by first-generation entrepreneurs to nurture successors can also be seen in Silicon Valley. The PayPal Mafia, the founding members of PayPal, have supported each other by investing in one another while pursuing their own paths, continuously leading the industry. Among the companies they founded, eight have become unicorns valued at over $1 billion. Representative examples include Elon Musk's Tesla and SpaceX, Steve Chen, Chad Hurley, and Jawed Karim's YouTube, and Reid Hoffman's LinkedIn. They are especially known for generously investing not only in themselves but also in promising junior entrepreneurs. To date, the PayPal Mafia has invested in over 646 companies.