[Inside Chodong] To Avoid Becoming a Country Reluctant to Start Businesses

Kim Cheol-hyun, Deputy Director, Bio Startup and Venture Department

The decline in the number of startup companies is becoming serious. At this rate, it is highly likely to record the lowest number ever. According to the Statistics Korea's data on the number of startup companies, from January to November last year, 1,092,176 companies were established. Considering that December, which has not yet been counted, was an uncertain period marked by martial law and impeachment turmoil, it is difficult to expect an increase in startups. Even if we generously assume that about 90,000 companies were founded in December, similar to the previous month, the total number of startups for last year would be about 1.18 million. This would be the lowest since statistics began in 2016. The previous lowest was 1,190,117 in 2016. On an annual basis, this would mark the fourth consecutive year of decline since 2020, when 1,484,667 startups were recorded. The well-known reputation of Korea as a "good country to start a business" seems ironic.

There are several reasons why the startup market has contracted like this. The so-called "three highs"?high interest rates, high inflation, and high exchange rates?combined with global economic slowdown, real estate market slump, and a cold wave in venture investment have all had a complex impact. The problem is that these domestic and international conditions are expected to persist without improvement this year as well. According to a recent survey by the Korea Federation of Small and Medium Business targeting 800 small business owners, 55.6% predicted that the business environment would worsen this year compared to last year, and 39.4% expected it to remain similar. The proportion of those who think it will be as difficult or more difficult than last year is 95%, while positive outlooks account for only 5%. In the Small Business Association's forecast for this year's business performance, 66% of respondents said it would deteriorate. In a survey by Startup Alliance, 40% of founders said their outlook for this year would "turn negative," and 42.4% said "there would be little change." Given these forecasts, it is not easy to expect the startup market to improve this year compared to last year.

What are the measures to revitalize the startup ecosystem, which is on the path of stagnation? Although the problem is complex, the answer is simple. According to Startup Alliance's survey, what founders most need for this is "activation of ecosystem-based funding and investment" and "regulatory relaxation." Comments from the "On-site Meeting to Seek Measures to Enhance K-Venture Competitiveness" held at the National Assembly Members' Office Building on the 23rd align with this. Lee Yong-gyun, Senior Vice President of the Korea Venture Business Association, said, "Early-stage investment is decreasing, making it difficult for early-stage companies to secure funding," and added, "It is necessary to expand the venture investment market size to over 30 trillion won annually and establish a dedicated loan system for venture companies." Lee Yong-kwan, CEO of Bluepoint Partners, said, "Since many actual projects are delayed, regulatory relaxation is needed to allow startups to grow." Hwang Eun-ah, Secretary General of the Korea Startup Forum, said, "To strengthen the global competitiveness of domestic startups, regulations related to new industries such as fintech (large information technology companies) and artificial intelligence (AI) should be relaxed, and research and development (R&D) investment should be the foundation." Ultimately, to activate startups, it is most important to enable smooth funding in the market and prevent regulations from obstructing business.

The issues of investment contraction and regulation in the startup market are not new. The fact that these long-standing problems still hold back progress means that clear answers have been difficult to provide so far. The era when startup motivation was found solely in founders' passion, innovation, or challenge has already passed. To resolve startup uncertainty, institutional support is necessary. To avoid becoming a "country reluctant to start businesses," the government's role is more important than ever.