1. Limitation of Chaebol and the emergence of startups

Duplicative and creative imitation are terms that describe the technological development of Korean companies from the 1960s to the 2000s. The government’s policy drive for economic development and hard-working Koreans have combined to achieve remarkable economic achievements. With the IMF crisis of 1997, strong pressure for industry restructuring emerged, and the Chabol-centered economic development model faced its limits. This provided an opportunity for Koreans to recognize the importance of an entrepreneurship, which led to a series of initiatives to promote venture creation, including the establishment of Korean Venture Business Association (1995), the launch of KOSDAQ (1996), an enactment of the Venture Business Act (1998) and the Fund of Funds Act (2005), Tech Incubator Program for Startup (TIPS, 2013), and finally the revision of the Venture Investment Act (2020). Korean government also upgraded the lower status of the Small & Medium Business Administration to a higher level, the Ministry of SMEs and Startups to emphasize its importance (2017).

In addition, with the progress of the 4th industrial revolution represented by digital transformation, Korea seeks to advance into new industries such as rechargeable battery, bio, robot, and AI, and tries to change its industry structure qualitatively. In this context, efforts are being made to create a new economy in terms of establishing a collaborative network between Chaebols and startups. Nine creative economy innovation centers have been established nationwide to strengthen local startup activities with each Chaebol, such as Samsung, LG, Hyundai, & SK etc. For example, the region where the author is located (Daegu) is the birthplace of the Samsung Group, and Samsung collaborates with both city government and regional startups to nurture a regional startup ecosystem in terms of public-private cooperative institution, the Daegu Creative Economy Innovation Center. In the remaining eight regions, similar institutions were established to nurture a regional startup ecosystem by linking startups to each Chaebols such as Hyundai Motor Company, LG Electronics, and SK respectively.

2. Korean startup ecosystem in Adolescence

If we were to diagnose the current Korean startup ecosystem, it would be like adolescence, with a significant growth in appearance but still immature physically and psychologically. The first venture boom in early 2000s led to so-called the ice age of ventures due to both the collapse of the dot-com bubble in 2001 and the conservative venture policies of the government. In the mid-2010s, the necessity and importance of ventures were recognized, and the opportunities to take a leap forward has been created once again. Recent notable changes in Korean startup ecosystem can be examined in terms of the following two aspects: startup companies and investment fund raising.

2.1. Changes in startup companies

Regarding the changes in startup companies, we can identify the following three characteristics. First, startup exits are actively underway. In 2019, Sua Lab, an AI-based inspection technology company, was acquired by Cognex, an American AI machine vision company, for around $ 190 million, followed by a mega exit in December of the same year, when BAEMIN was acquired by a German delivery platform company for around $ 4 billion. In a similar case, HyperConnect was acquired by the US Match Group for $ around 1.7 billion in 2021, and in the same year, Coupang was listed on the New York Stock Exchange and achieved a market value of $ 190 billion. Thus, startup exits are actively undergone in terms of mergers, acquisitions, listings, and flips. Second, large-scale investment attraction is also occurring noticeably. There are more than 1,400 investments worth more than KRW 1 billion. In 2020, online shopping mall Curly attracted Series E investment of about KRW 200 billion, Toss Bank attracted KRW 300 billion, and Yanolja, a global travel tech company, attracted KRW 2 trillion from the Vision Fund. In addition, their sales performance is also showing good record. Lastly, based on these activities, the number of startups has reached over 40,000 and is showing a continuous increase.

2.2. Changes in the size of investment

On the investment side, the following two phenomena could be found. First, in terms of overall investment, the scale is continuously increasing, and by 2021, the total investment funds from Venture Capital, government investment funds, and overseas and corporate investments are about 20 trillion won, the management size of investment funds is approximately 55 trillion won. Among them, the amount corresponding to new investment is 6 to 7 trillion, which shows an increase of about 70 to 80% compared to the previous year. Comparing the scale of VC investment in both Korea and Japan as of September 2021, the amount of Korea’s VC investment is more than three times that of Japan, and the number of invested companies is approximately 1.8 times that of Japan. This is an indicator that Korea’s venture investment capital market can be seen as relatively active compared to Japan. Second, the number of startup investment companies and new technology business finance companies exceeds 300, and the number of accelerators continues to increase, including over 300. Investment areas are also expanding globally, including Southeast Asia. Existing companies are also actively engaging in venture activities. At the end of 2020, a bill was passed allowing holding companies to establish corporate venture capital (CVC), which is also very active to innovate large corporations’ survival.

As seen above, significant progress and development are being made in Korea’s startup ecosystem in terms of the size and growth of its startup companies and its investment fund. It needs further development in terms of increased variety in human resources, overcoming concentration in the metropolitan area, Seoul, and market-oriented rather than government-led development of an ecosystem.

3. Conclusion

Korea’s startup ecosystem is in its youth and has infinite possibilities, but still has unfinished tasks of scaling up individual companies and balanced development of the entire ecosystem. The development and growth of Korea’s startup ecosystem will depend on how well these issues are resolved. We hope that the creativity of Koreans will open a new chapter of nurturing a healthy and resilient startup ecosystem soon.

Author：Gyewan Moon　Full Professor,School of Business / Administration, College of Economics & Business Administration, Kyungpook National University
Gyewan Moon is a Professor of Strategic Management & Organization Theory in the School of Business Administration at Kyungpook National University in Korea. He has several experiences in serving University and University-related institutions, such as a Board member of Kosin University Board (2018~2022), the President of Korean Academy of Management (27th, 2016~2017). He also served his University as a Chairman of Faculty Assembly (2014~2016), an Associate Vice-President for International Affairs (2012~2014) and a Director of Research Institute of Economics and Business Administration (2013~2014). He has been organizing an international conference on entrepreneurship and innovation for the past 9 years. He has good working relationship with Finnish scholars and Japanese scholars in the area of smart health areas. He published several papers in Academy of Management Review, International Journal of Information Management, etc. He received his DBA at Southern Illinois University Carbondale. U.S.A. He is currently interested in the research on nurturing startup ecosystem in S. Korea.