South Korea’s entrepreneurial ecosystem is still in its infant stages, with around a decade of targeted activity which has greatly increased in recent years. The government plays a very significant role in all aspects of the ecosystem, from funding to the establishment of support systems for startups. The system also receives support from the large ‘Chaebol’ organisations that dominate Korean markets (e.g. Samsung, LG, Lotte) as well as other large companies, such as networks of banks. This support often comes in the form of funding and incubation programs, usually in partnership with the government. It is less common for corporates to seek to work with startups in co-development.
The majority of incubator / accelerator programs and other startup support initiatives are underpinned by the government. These are often instituted in collaboration with Chaebols or universities. Some other groups, such as Google’s ‘Campus’ are also present in the ecosystem. Startup programs come in many forms, some providing investment, while others provide space, or simply community support and event hosting. The majority of startup activity is based in Seoul, although the government has established Centers for Creative Economy & Investment across the whole country, and Korea’s second largest city – Busan – is another hub of activity, especially in the areas of logistics, retail and the movie industry.
A substantial amount of funding comes from the government, including funds routed through venture capital groups. While the country has a small cabal of ‘unicorns’, the level of exits and IPOs has remained low and this reduces the amount of capital coming from ex-founder angel investors, although some are beginning to re-invest in the ecosystem. Hardware startups are likely to use crowdfunding platforms as a funding option, although these platforms are not well-used by the general population.
Society is seeing a shift from the older, more traditional generation whose key goals were roles within Chaebol companies, to a more liberal and internationally-influenced younger generation with more interest in entrepreneurship. Korea has traditionally been an insular market which prioritised its own companies over international competitors. This has led to the growth of Korean equivalents of globally-dominant companies; for example, Naver is the country’s answer to Google, offering a similar range of internet services from search and email to mapping services. This is also evident in the startup market, where a large number of founders are able to start businesses by lifting and shifting existing ideas into the Korean market. Opinion differs on the level of genuinely new ideas produced by Korean startups, but Korea’s national obsession with education, as well as a tendancy for the best students to study abroad (to raise their competitive profile as much as for the experience), means that young Koreans are building the kind of deep and diverse knowledge base that could be a wellspring for innovation.
The Korean startup ecosystem does not yet have any clear focal sectors (e.g. London has fintech, Israel has security), but potential areas for dominance could include e-commerce, online media content and IoT. There has been previous success in gaming, social media and virtual currencies, although it seems that these may have been shorter-term trends rather than transforming into industry mainstays.
Korea has a relatively small native market, and a desire to raise its profile on the international stage, and consequently many programs are aimed at helping startups to reach international markets. There are also programs to increase the activity of foreign entrepreneurs with Korea, although these are at an earlier stage.
One of the biggest threats facing Korea in the coming years is their ageing population, and there are moves to increase the younger workforce with both a greater acceptance of foreign workers as well as bringing more women into the workplace. While women traditionally had a restricted role in the workplace, this is changing rapidly due more to a pragmatic approach to utilise workers rather than a strong feminist movement.
Challenges and Opportunities
The Republic of Korea may be a physically small country, but it has very large ambitions and a proven track record of achieving them. The government is making very clear efforts to raise up a strong entrepreneurial economy and there is a great deal of human talent to put to use, provided energies can be focused correctly. There is much for the country to gain from a successful innovation ecosystem, in terms of job creation, global recognition and an increase in diversity. While the government’s structured support for the nascent ecosystem may propel it to similar success levels of previous initiatives (government policy created the Chaebols), it may also be its biggest challenge. The prove point for the South Korean startup ecosystem over the coming years will be whether it can cut the apron strings and stand on its own without government support, creating its own cycle of exits and re-injected funds, along with privately-owned campuses and communities. This will be the pivotal question, as the ecosystem will need to find a firm bedrock foundation which can’t be split by a simple change in government leadership and policies.
Note: This is a brief overview of the startup ecosystem in South Korea, with insights gathered from three weeks spent in Seoul, Busan and other cities, around 10 interviews with startups, accelerators, investors and others, visits to conferences on Robotics and IoT, and attendance of Meetup groups. More in depth findings will be detailed in the full report.