[Reporter’s Notebook] Record Number of Business Closures... Time to Build a Structure for Survival

"What is the point of just increasing the numbers? Six out of ten startups fail to survive for five years."

A representative of an accelerator (AC) whom I met recently shook his head as he mentioned the low survival rate of startups. He said, "Successive governments have called for revitalizing venture investment, but in reality, they have only focused on increasing the number of startups," and pointed out, "Now, the direction of early-stage investment policies must fundamentally change."

The statistics support this concern. According to the National Data Office's "2024 Business Demography Administrative Statistics," the number of new businesses in 2024 hit its lowest in six years, while the number of closures in 2023 was the highest since records began. The five-year survival rate for new businesses was only 36.4 percent. This means that six out of ten startups are forced out of the market before reaching their fifth year.

The average five-year survival rate for new businesses in the Organisation for Economic Co-operation and Development (OECD) is 45.4 percent, which is 9 percentage points higher than in Korea. This demonstrates that while Korea's startup ecosystem is relatively lenient when it comes to market entry, it has a weak structure to support survival. This is why there are calls for policy focus to shift from "how many startups are launched" to "how many survive over time."

The Lee Jaemyung administration is working to revitalize the venture ecosystem this year by establishing a National Growth Fund worth 150 trillion won. Regulatory easing has also been implemented. With the recent passage of the "Partial Amendment to the Act on Promotion of Venture Investment" in the National Assembly, accelerators can now invest in companies through private investment associations not only if they are "startups less than three years old," but also if they are "companies with no prior investment history and within five years of founding."

However, there are still clear shortcomings. Although the scope of investment targets has been expanded, the stipulation that they must be "startups with no prior investment history" makes it difficult to secure follow-up investments after the initial round. Furthermore, since this easing only applies to private investment associations, accelerators operating institutional investment associations still face a heavy regulatory burden. These institutional limitations raise the question of why regulatory easing and support for accelerators are necessary. This is because accelerators are effectively responsible for validating business models and filtering out early failures.

Now, the success or failure of venture policy should be evaluated not by "how much capital was injected," but by "how many companies survived." Redesigning the regulatory and support systems so that accelerators, who can reduce the failure rate of early-stage companies and accompany them through growth stages, can properly fulfill their roles is the starting point for building a "structure for survival." This is why a policy shift focusing on survival rather than numbers is needed.