Big plans are underway to make South Korea a regional start-up hub. Backed by an initial investment in 2015 of $3B USD, the government made a further pledge last year to establish a $9B USD venture fund with public and private finances. South Korea has the highest government backing per capita for start-ups.
The initial investment is already paying off with Google, SparkLabs and other big names setting up shop in Seoul over the last three years. Tim Chae heads 500 Startups’ Korea fund, which has invested in 30 startups locally. Chae believes Seoul’s unique characteristics, particularly among Southeast Asian countries will help drive the city towards Tel Aviv-style status.
Some of the attractions for foreign founders and investors include South Korea’s developed economy. Unlike India’s speculative rising middle class, South Korea’s middle class is the majority. Every consumer has a smart phone and a credit card. For foreigners, despite traditions rooted in conglomerates and lengthy process; South Korea is considered one of the most comfortable places in Asia because of its infrastructure, its cost of living, its modernity and its connections to Japan and China.
Half of the population resides in the greater metropolitan area surrounding Seoul. This unique geography, Chae says, propels trends and word-of-mouth about new products. Seoul is essentially a single-market city within a conservative culture slowly adapting to entrepreneurship. South Koreans are now more interested in using better products than automatically buying big labels, like Samsung. And parents are coming around to the idea that entrepreneurship can be a viable alternative to a job for life.
Boasting the highest broadband penetration in the world at 97 percent, South Korea tops lists of most innovative countries and is rolling out 5G coverage.
The government is playing a significant role with a number of initiatives including matching funds with international investors, establishing international entrepreneurship programs at universities, and opening up it’s many research institutes, providing safety nets for scientists who strike out on their own.
But there are critics who say government funding is burdensome and directed too heavily towards early stage startups.
Derik Kim is Chairman of the Global Entrepreneurs Foundation, an accelerator and the HSR Epicentre.
“The government has pledged a lot of money but it’s not efficient because it’s too complicated, both the supporting procedure and the requirements for utilizing the money. We need more support for mid and late stage startups. At the moment, only foreign capital provides that,” Kim says.
Chae agrees the lack of later stage funding leads to other imbalances.
“There aren’t any domestic funds who can write the big checks. So you end up having foreign investors like us who benefit because we’re the only ones here who help with capital from outside Korea.”
Much of Seoul’s ecosystem is centered in trendy Gangnam, with foreign and local VCs, accelerators, incubators and co-work spaces forming part of the neighborhood with regular networking events for locals and expats, including Startup Grind Seoul.
The government has established programs to attract foreigners, such as its K-Startup Grand Challenge, providing flights, office space, and stipends to foreign founders; but a lack of diversity remains and is seen as an obstacle to growth. Google ran an incubation batch for moms allowed to bring their babies but foreigners grapple with months long waits for visas. There are no longer restrictions on starting a business without capital, but foreigners are largely excluded from government funds without a Korean partner owning 50 percent of the business.
Domestically, the government is encouraging startups to take advantage of the country’s high concentration of R&D. An engineer can serve their 2-½ year military service at a tech startup after two months of basic training. Another program supports researchers who leave high-paying jobs to launch a startup. Companies are encouraged to re-instate them in their roles if a venture fails.
Steve Lee, a serial entrepreneur and investor who divides his time between South Korea and the US believes the research play could payoff.
“You have startups working on things like wearable light therapy, cancer detection with a thermometer, and scar-healing wearable tech. They usually would go to local VCs and by the time they hit the international market the value is sky high. This is all a result of the government opening up research institutes.”
500 Startups’ Tim Chae sees other industries being a natural draw, like eSports, which has been a top-rated sector in South Korea for more than a decade, as well as beauty and skincare.
“A lot of the rest of the world looks up to Korea (in eSports) so if you’re in that space you should be based here or have a base here. Althea is an e-tailer exporting Korean beauty products to Asia.”
Chae encourages founders working in geographies with affection for South Korean culture, like Hong Kong, to consider a base in Seoul. For investors Chae says it’s an opportunity for early stage investment in an ecosystem destined for bigger things.
“I’m here because I think in ten years, Korea will become one of the globally respected tech hubs in the world.”
Read more stories about Seoul's startup scene here:
https://www.forbes.com/sites/amyguttman/2016/02/15/how-coldplay-inspired-a-korean-entrepreneur-to-disrupt-the-concert-business/#2450acbe22f4
https://www.forbes.com/sites/amyguttman/2017/05/31/seoul-food-foreign-born-koreans-return-to-build-a-home-cooked-ecosystem/
