South Korean Startup Ecosystem
It is amazing to see how far South Korea has come in just 60 years. During the time of the Korean War, South Korea and North Korea were dirt poor. While North Korea has struggled to advance, South Korea has been an economic powerhouse. South Korea’s GDP in 2017 was close to $1.5 trillion, which is bigger than Australia. Just 20 years ago the startup ecosystem in South Korea virtually did not exist. The Korean government was trying to grow and find new ways to create jobs in the economy. Slowly they would realize that entrepreneurship was the key to job creation and a strong and innovative economy. When you look at the Korean startup scene today, the community is strong and growing. Over 500 million dollars a year has gone to funding late-stage startups for a few years now. There is a lot of potential in FinTech and IoT which are key growth areas for Korea. It seems the culture has changed as well as more and more young Koreans are looking to get into entrepreneurship. Here are the five main components of the Korean startup ecosystem.
1) Entrepreneurs in Korea
The number of startups in South Korea in 2017 was close to 30,000 with over 100,000 startup employees. Just 20 years ago the number of startups was below 2,000. A vast majority of these startups are in Seoul. This helps drive trends and word-of-mouth about new products and services. Seoul is essentially a single-market city within a conservative culture slowly adapting to entrepreneurship.
Many Koreans now have an alternative to working for a big conglomerate like Samsung, Hyundai, or LG. The older generation is starting to embrace entrepreneurship a lot more than in the past. Now young Koreans have the alternative to be an entrepreneur and run their own business.
Foreigners working in Korea
One of the issues, South Korea has been having has been retaining foreign talent. If you go on the internet you will find many horror stories of foreigners who have worked for big corporations like Samsung. Usually, when foreigners join a Korean company they will be working with Koreans. Many times they will be the ONLY foreigner in the company or team. It is natural for many foreigners to feel isolated and most of the blame/responsibility will fall on them. Add this to the lack of communication due to language barriers and you have a terrible working environment. Therefore foreigners need young Korean entrepreneurs with a global mind in order to bridge the gap for a productive working environment.
The Korean Working Culture
The working culture and living culture in Korea is a bit different from the West. The hours at a Korean company are very long. While it might say 9-6…in reality you can’t leave at 6 pm. You need to wait for at least an hour and if there is more work to do, you must finish it before you leave. Even if that means working until 1-2am. You most likely will not get overtime. Korean bosses usually have crazy demands and deadlines which you can never question in public. Thankfully young Koreans and foreigners are slowly moving away from this archaic Korean working culture.
The Korean government has encouraged more Korean entrepreneurs rather than foreign startup entrepreneurs. For example, the TIPS (Accelerator Investment-Driven Tech Incubator Program for Startups) in Korea offers Korean government support to share the risk of business failure. However, it requires for the startup to have at least one Korean startup founder in the company. This is why you don’t see a lot of foreigners working in Korea.
2) Startup Funding in Korea
Funding in South Korea really started to take off in 2014. It went from $71 million in funding in 2013 to $949 million in 2014. Then went to an all-time high of $1.8 billion in 2015. These days it has settled down to around $500-$600 million per year. This shows that Korea has a large and diverse range of investors, Korea-based funds, corporate VCs, and Silicon Valley VC firms just to name a few.
Accelerators in Korea
There are many Accelerator programs, Angels, and VC firms in South Korea. Some of them include:
Softbank Ventures Korea which specializes in IT startup investments. They are famous for their $1 billion investment in Coupang.
STONEBRIDGE CAPTIAL who invests in early-stage startups through staged investments.
Korean Investment Partners, the leading venture capital firm in Korea.
MBK Partners, the largest and most successful independent private-equity firm.
The Ventures, an early stage accelerator with strong connections in Southeast Asia and Silicon Valley
..just to name a few…
I have not mentioned some of the big corporations that have started their own startup hubs like Samsung’s C-Lab Space or Naver and their Startup Alliance. A lot of big corporations in South Korea are actively investing in local startups. However, there is still a large talent gap compared to the United States. We are talking about talented programmers, engineers, and developers. The top graduates tend to want to work for global companies like Apple or Google. Most of the gifted students in Korea tend to want to study abroad in the UK or the US. Once there they usually don’t come back to Korea.
There is also the pressure from the old generation in South Korea to get stable secure jobs with big conglomerates. Many Koreans still have a lot of fear about starting their own business, especially a startup.
3) Korean Startup Infrastructure
Currently, there are over 50 co-working spaces in Korea. Some of the big names include WeWork, Fast Five, Fab Lab, Seoul Startup Hub, Google Campus Seoul, Maru 180, and the most recent HEYGROUND. There are also over 100 accelerators, incubators, and Innovation Centers in South Korea. HEYGROUND impressed me the most with their community of changemakers managed by ROOT IMPACT. Their facility is great as well with their high-end design, open-concept workstations, as well as a restaurant and bar on the bottom floor.
The Korean government also assists in programs to help the startup ecosystem. South Korea has the highest government backing per capita for start-ups. I mentioned TIPs earlier but there is also the K-Startup Challenge which promotes collaboration between domestic and foreign startups. All companies form the K-Startup Challenge work out of the Pangyo Global Startup Campus which was opened in 2016 by the Korean government as part of a new startup hub.
4) Korean Startup Community
Building networks and connections are the best way to form partnerships. It is important to be a part of a strong community that helps one another. Entrepreneurs helping entrepreneurs is what got Silicon Valley to the level it is today. In Korea, there are many Startup communities like Startup Alliance which helps foster Korean startups expansion into the global market. The Ministry of Science, ICT, and Future Planning, as well as Korean IT companies such as Naver, SK, and Kakao, helped create this community.
There is also Startup Grind Seoul which currently has over 1,600 members. They hold events and meetups every month to help entrepreneurs in Korea network, learn, and provide support.
Startup Festival 2017
Lastly, there is the Startup Festival that occurs the same time every year (Late November/Early December). The Startup Festival is organized by the Ministry of SMEs and Startups as well as KOFAC (Korea Foundation for the Advancement of Science and Creativity) to help bring in global startups, investors, and media into Korea. As well as help Korean startups go global. The event brings in investors, speakers, media, and startups from Asia, United States, and the UK for a 3-day matchmaking global startup conference.
5) Korea’s Strengths/Weakness
South Korean popular culture is growing every year. Korean beauty products are thriving thanks to successful Korean startups like Memebox. There are over 8,000 K-Beauty brands in South Korea. Korean K-pop is bigger than ever thanks to groups like Big Bang, 2NE1, and EXO. Also, the Korean IT infrastructure is one of the best in the world. The country has the best internet connection and most Koreans own smartphones. Koreans are early adopters of new technologies and early trend setters for fashion.
Fintech is also huge in Korea as Korea is becoming the leader in cryptocurrency exchange and services. Korea looks to become the leader in the global financial centers. Soon Seoul will become the FinTech hub of Asia. One of the top Fintech startups in Korea is Viva Republica, which is the developer of Toss a mobile payment tool that is looking to go global after having much success in Korea.
Korea has a great consumer market. Their middle class in the majority. Most people living in Korea have smartphones and a credit card. They have the highest GDP per capita, great wireless penetration, great infrastructure, and fast LTE. All these elements combine to make a great home market to grow your startup. This is why Korea is able to support companies and startups in Korea that are focused only on the domestic market. Korea has 50 million residents that are very tech-savvy. That is one of the main reasons why Korea is able to support a massively scalable business. Some examples would be companies like Naver, Coupang, and Ticket Monster that solely focus on the Korean market.
Cost of living
South Korea has some weaknesses they have to work on. The cost of living in Seoul is very high. Especially in Gangnam where you will need to put down a deposit of $10,000 and a monthly payment of at least $600. This is just a studio apartment. Therefore most Korean startup entrepreneurs communte in and out of Seoul to avoid the high living cost. Office spaces are expensive as well, which is why many Startups are moving into co-working spaces. Starting a startup is hard enough for Korean entrepreneurs, so the last thing they want to do is spend their money on rent.
Finding the right investor
Investors in Korea need more education on investing in startups. There is a lot of “old” wealth in Korea which has come from real estate and family inheritance. Most of these old investors WANT to invest in tech startups but they don’t know a lot about it. Hopefully, this will change as successful startup entrepreneurs give back to the community. Korea still holds a corporate mentality, therefore it is up to the 2nd and 3rd generations of traditional Korean startup entrepreneurs to the ranks of their family hierarchy. This is the only way Korean startup will be able to go global, they need to throw away the old Korean corporate mentality and bring in fresh minds. The lack of global know-how for Korean startups really holds back the development of the Korean Startup Ecosystem.
Where are the unicorns?
There have been many startup success stories. However, South Korea does not have many “Unicorns”. The only three that come to mind are Coupang (e-commerce), Kakao (Internet), and Yello Mobile (Mobile commerce) who all have established multi-billion dollar valuations. Korea needs to produce more global startups, Unicorns, and exits are what boosts a startup ecosystem progression that allows Korea to attract global resources which in turn accelerate growth. It is hard for most Korean startups to break out internationally due to their lack of localization ability. Therefore most Korean startups tend to focus more on the local market which limits their potential. Therefore, the Korean startup ecosystem is a bit behind the United States. It will still take a few years to catch up.
South Korea needs to continue to invest in programs to help the Korean startup ecosystem. Entrepreneurship has proven time and time again to be the #1 driver for job creation and economic growth. South Korea will never be able to compete with Silicon Valley or Shanghai, however, they can leverage their own unique assets to create innovative startups.
As long as they push to bring in more and more international talent into Korea, the more likely Korean startups will have the chance to go global. Korea’s potential is there and many countries are recognizing it. I fully believe that the Korean startup ecosystem will continue to accelerate while at the same time produce global startups and hopefully Unicorns.