If You Run Ahead, You Will Fall... The Collapsed Venture Ecosystem [Only the Worst Survive in K-Startup] ①

Investment Funds Flow More to 'Stability-Seeking' Companies than Innovation
Stock Exchange Listing System Becomes Conservative with 'Sales over Technology'
'Venture Spirit' Faces Extinction in Startup Ecosystem

"Currently, in the Korean startup ecosystem, the first place has become last, and the last has become first. Companies seeking stability rather than innovation are receiving investments."

The CEO of global accelerator (AC·startup planner) S, who has served as a mentor for domestic startups for over 10 years, lamented that the driving force to nurture entrepreneurial spirit and explosively grow the potential of companies has disappeared in Korea's startup investment ecosystem.

Greetings from the Startup Industry... "How much money is left? How many months can you survive?"

CEO S said, "The industry is so tough that 'how long can you survive?' has become a common greeting," adding, "With government-backed funds like the foundational fund reduced to one-third compared to the previous year, startups are drying up as their funding sources are cut off without preparation."

According to the detailed status of domestic venture investment and fund formation in 2023 recently announced by the Ministry of SMEs and Startups, venture investment amounts, which reached $13.9 billion in 2021, have sharply decreased to $8.4 billion in 2023.

Looking at new investment status over the past three years, it has continuously declined from KRW 15.9371 trillion in 2021 to KRW 12.4706 trillion in 2022, and KRW 10.9133 trillion in 2023.

He said, "The bigger problem is that the limited investment funds are going not to growth companies but to companies seeking stability," explaining, "In the current investment environment, investors prefer companies with KRW 1 billion in sales and no deficit over companies with KRW 10 billion in sales but a KRW 1 billion deficit."

This means that investors are giving better scores to companies that conservatively and stably manage their funds rather than those that achieve explosive growth based on technological capabilities.

Experts analyze that right after the COVID-19 pandemic, liquidity exploded, leading to an increase in companies that grew superficially without substance, and in response, investors are demanding strong financial soundness.

Choi Seong-jin, CEO of Korea Startup Forum, expressed concern, saying, "There should be a good balance, but currently investors are excessively emphasizing financial soundness," adding, "If management strategies are set to enter the global market only after breaking even, opportunities in the global market may actually close in the startup industry where speed is vital."

K-Startups to Determine the Direction of Korea’s Future Industries… Policy Focus Misaligned, Prioritizing Sales Over Technology

Unlike the times when liquidity was abundant, the absolute amount of market funds has decreased, narrowing the 'strike zone' in venture investment. For the future growth of Korean industries, funds should gather in companies with innovative technologies capable of surviving global competition, but recent policy directions do not reflect this.

Yoon Geon-su, Chairman of the Korea Venture Capital Association and CEO of DSC Investment, explained, "If the strike zone in baseball was 1㎡ in the past, it has now shrunk to 10㎠," adding, "Now, companies cannot focus only on the domestic market; even early-stage startups must start with global competition in mind. A high level of technological capability is required."

Chairman Yoon expressed concern, saying, "We need to pump money into companies developing technology from the ground up, but the current listing system keeps focusing on sales and profits rather than technology."

He explained, "Since listings are granted mainly to companies with good current sales rather than future technologies, investors naturally focus only on those companies. Venture investment is about investing in ten companies to succeed in one or two. We need a flexible mindset that among ten listings, about five may be delisted. But if companies are viewed only from the perspective of protecting small investors, it is difficult for money to flow to challenging and future-oriented companies."

Microscopic Scrutiny of Future Performance Estimates... Technology Ventures Face Consecutive Listing Failures

In recent years, repeated negative issues with technology-special listing companies such as SillaJen and Padu have led to intensified microscopic scrutiny by financial authorities, and combined with the capital market downturn, the domestic startup and venture market has become excessively conservative, according to market experts.

Especially, bio ventures have been withdrawing their listings one after another, unable to overcome the heightened hurdles. This is because the Korea Exchange has started rigorous verification regarding the basis for future performance estimates of preliminary listed companies.

This year, companies such as Corpharma, Norma, Optorain, Hisense Bio, and Pinobio have consecutively voluntarily withdrawn their preliminary listing reviews.

Jeong Woon-soo, former Vice President of the Korea Exchange with 30 years of experience in the KOSDAQ market and known as a 'KOSDAQ expert,' advised, "From a long-term perspective, if we think about our future food sources, the focus should be more on growth potential and global competitiveness rather than current sales or profits," adding, "If this continues, Korea's future will become uncertain and the economy will become a lifeless, dead economy."

Professor Kim Kyung-hwan of Sungkyunkwan University Graduate School of Global Entrepreneurship emphasized, "In the bio sector, it is an industry that requires so much money that it cannot be left only to the private sector," adding, "It is a field that requires detailed government policy support rather than just judging by sales."

Meanwhile, according to the '2023 Korea Startup Investment Briefing' released by startup investment information company The VC, the number of startups that closed last year totaled 146. During the same period, the number of newly established startups was 95, a sharp decline of 70.5% compared to 322 in 2022.

Startups that had raised hundreds of billions of won in cumulative investment also collapsed. Yellow Digital Marketing and Yellow O2O Group raised KRW 51.1 billion and KRW 30 billion respectively but closed in October 2023. Cloudgate, a screen baseball development company that raised KRW 12 billion through Series C, and The Check, a small business sales settlement platform that raised KRW 10.2 billion, also closed.

Tailbus, which attracted KRW 2.3 billion in seed-stage investment and raised expectations, also shut down. Additionally, 'Oneul-ui Kkot,' a flower market dawn delivery service, and 'Nam-ui Jip,' the first investment company of the used goods trading platform Danggeun, also closed. The five-year survival rate of domestic startups is 33.8%, 11.6 percentage points lower than the OECD average of 45.4%.