Seoul, home to world-leading hi-tech corporations and infrastructure, now wants to be a pasture for unicorns. Photo: Robert Koehler

While the eyes of the world are fixed on the novel coronavirus pandemic, South Korea – which already hosts a national flock of 10 unicorns – is quietly backing its ambition to become a leading player in the global startup ecosystem with policies, support packages and cash injections worth US$1.2 billion.

The figure, which covers all of 2020, represents a 29.8% increase over 2012 and marks a record high. It is the aggregate of a wide range of initiatives undertaken by an alphabet soup of government ministries and agencies.

As part of the wide-reaching series of initiatives, 21 new startup support programs have been created.

A $35 million Innovative Startup Package is to be launched by the Ministry of SMEs and Startups. A $10 million R&D program is also planned by the Rural Development Administration to promote agritech. And the Ministry of Justice, which controls immigration, is opening South Korea’s doors to foreign entrepreneurs with the aim of luring startup talent from overseas.

The numbers demonstrate the country’s strengthening commitment to the startup sector and the support is almost double that of the $650 million government invested in the sector in 2018.

The Ministry of SMEs and Startups, a new government ministry established by current President Moon Jae-in, accounts for 86.87% of the spending. The ministry works with a large number of affiliated organizations, such as KISED, or the Korea Institute of Startup and Entrepreneurship Development, that has supported more than 40,000 startups through a wide range of programs since founding in 2008.

Seoul has long had a generous hand when it comes to supporting the funding and growth of those sectors deemed critical to national interest.

The practice stretches back to the country’s first industrial revolution in the 1960s, when infrastructure companies and industrial exporters were prioritized and incentivized, through to the growth of its high-tech sector, which was kick-started by state-led initiatives in broadband and mobile telecoms networks.

Unicorn rampage

Korea is already home to 10 unicorn startups, placing the country in sixth place globally behind the US, China, India, the UK and Germany. The South Korean government aims to further increase the size of the national flock.

In December 2019, Finance Minister Hong Nam-ki announced a $248 million funding package to support future unicorn startups operating in the fintech sector. This fiscal support compliments an existing regulatory sandbox system that enables entrepreneurs to develop financial products and services within a protected environment, avoiding the strict regulatory constraints faced by established players in the open market.

“Through various programs the government supported the early growth of several of Korea’s current unicorn startups,” said Park Young-sun, Minister for SMEs and Startups. “Based on exceptional recent results, we aim to reinforce these efforts and provide even more support through the formation of a ‘Unicorn Fund’ to provide financial liquidity and other support to high potential startups in several industries that are key to Korea’s future economic growth. We have a goal of fostering 10 new unicorns within the next five years through these mechanisms.”

Sectors that are particularly key to the nation’s future growth are referred to as “DNA” – data networks and artificial intelligence

Broad, tailored support

Beyond easing the financial burden of startup creation and providing R&D assistance, the government is also committing funds to provide facilities and space for startup education and mentoring across the country.

Support will also extend to new demographics, including aspiring startup entrepreneurs above the age of 40. Some previous programs were only offered to those aged under 39.

A successful startup scale-up program between the Ministry of SMEs and Startups and Google Play to support growing game and app developers is being expanded to link manufacturing, distribution and logistics startups with global corporations.

Support segmented

Korea’s established TIPS program (Tech Incubator Program for Startups) is expanding. Going forward, it will not only provide support for companies in its program, but also to those preparing to enter it, as well as those that recently graduated.

Designed to identify and nurture startups with groundbreaking technologies, the TIPS program creates opportunities for wannabe players to meet angel investors and mentors, and has allocations for incubation and R&D funding.

Global, local aspirations

Seoul is creating a post-graduate training program for graduates of a state-sponsored entrepreneurs’ college, the Youth Startup Academy, to help them expand internationally. “Local Creator Vouchers” aim to foster startups that focus on media, entertainment, social issues and local culture.

The government is also providing support to startups focused on semiconductors, bio-health and materials, as well as in heavy industry, including future cars, parts and machinery – especially those with international aspirations.

Beyond direct financial support, the government will also provide startup-focused facilities across the country and even overseas, including opening Korea Startup Centers (KSCs) in Sweden and Finland to promote the globalization of Korean startups and build international networks, especially in Scandinavia’s progressive ecosystem.

‘Smart Korea’

Meanwhile, the Ministry of SMEs and Startups’ “Smart Republic of Korea” initiative goes full-scale in 2020.

The “Smart Republic of Korea” is a broadly defined ambition. The initiative encompasses a range of policies to support entrepreneurship and research and development, to realize an ambition to become one of the world’s top countries for startups.

This involves tailored support for companies at different stages of development, as well as differentiated support for research and development.

As part of the initiative, the ministry will create subsidies and a so-called “fund of funds” to provide funding to SMEs that have fiscal constraints, but are rich in technical capacity.

Segmented support will be provided for research and development in strategic technologies connected to the Fourth Industrial Revolution, parts and materials and the so-called big three: system semiconductors, bio-health and future cars.

As part of the initiative, the ministry announced it would earmark about $25.4 million to support startups offering smart services, promote the development of high value-added AI products and encourage R&D in big data-related services.

In yet another move, it was announced that the state-run Korea Venture Investment Corporation would operate a $2 billion venture fund this year, a total that includes almost $900 million from the government.

Socialist capitalism?

In a country where finance is heavily regulated, where lenders have customarily been conservative and where the venture capital industry still lacks the scale and sophistication of Silicon Valley’s, players support the government initiatives.

“It’s great that the Korean government is supporting the growth of the local startup ecosystem, including a wider range of support such as R&D facilities, beyond just financial support,” said Lee Eun-se, managing director of private-sector accelerator Techstars Korea. “This is important for industries like AI and biotech, and especially important this year when many companies may have additional challenges. This could place Korea in a strong position once the Covid-19 pandemic subsides.”

For those who might question the wisdom of what may appear to be the emplacement of a socialistic model a-top a supposedly entrepreneur-centric sector, Lee noted that South Korean capitalism has customarily flourished under a strong, dirigiste hand.

“It’s in keeping with Korea’s long-standing practice of the state leading the development of sectors of the economy policymakers consider vital to the nation’s future,” Lee said.

Nathan Millard runs a startup marketing firm in Seoul that includes, among its clients, KISED, or The Korea Institute for Startup and Entrepreneurship Development.

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