South Korea’s Small and Medium Business Administration has reported that the number of angel investors in the country was at 619 in 2011 compared to 28,875 in 2000. As of March 31 this year, however, there were 28,731 start-ups in South Korea, the bulk (90%)of which were specialising in computer software development and manufacturing. Start-up companies are only expected to multiply now that the government has made available an unprecedented 3.31 trillion won ($2.97bn) for start-ups, especially those in the technology sector. The funding will be used for subsidised loans and state-backed investments into newly founded companies.
According to figures from the Korea Venture Capital Association total resources committed to venture investments in the first half of 2013 were at 10.4 trillion won ($93.1bn), compared with 10.5 trillion won for the whole of 2012. However, these impressive figures are not necessarily appeasing seasoned venture capitalists that have Silicon Valley experience. News reports on the ground garnered from venture capitalist commentary is highlighting the start-up community’s impatience when it comes to setting a realistic exit timeframe.
According to a Wall Street Journal report, South Koreans are not hampered by the lack of capital when it comes to developing startups further, but rather by a culture that emphasises a ‘quick return on investments’.
In regards to this culture for quick returns, Greg Moon, chief executive and president of SoftBank Venture Korea, said, “ventures need patient and courageous capital”. The remarks were made at a recent seminar in Seoul, according to the Wall Street Journal report,
Entrepreneur networking between start-ups and banks is also not at an adequate level in Korea. There is also a lack of business savvy people to run the start-ups, which means that companies do not have a long-term future past the initial funding stages. If a company fails it is very difficult for entrepreneurs to brush off the dust and start again as creditors are not as forgiving as in say the US or Europe.
But once the skill base is strengthened alongside a greater respect for value added companies with long-term growth strategies, the South Korea start-up market will be on the right track, given its government’s great hope in building a new generation of companies outside Korea’s manufacturing-based economy. KVCA statistics show that government LPs account for 25.2% of the capital entering VC funds in the first half of 2012 with a further 20.9% coming from public pension funds. The private sector in that same period committed just under 30%.