There’s a nascent startup renaissance happening in this country, and this time it’s for real. We’re not talking “venture businesses” (벤쳐기업), the Konglish term that was adopted a little over a decade ago to refer to the Korean image of what a startup is. More or less that came down to policies that gave support to existing businesses or gave tax breaks to companies that got investment from abroad (often by someone sending their cousin in the US 50 mil. won and them sending back US$50,000 back again). Put up a wall and a door with a lock, put a sign on it that says “Research Lab” and you too can become a “venture” company!
No, we’re talking about serious support for risk takers who are looking to do something creative – looking to become disruptors of the old guard. This support may be financial or it may be expertise delivered through organizations like incubators and accelerators. People are also creating new versions and new structures that are unique to the Korean market, meeting the needs of the domestic human capital.
What is a “Startup”?
Stanford professor and startup guru Steve Blank says, “… a startup is a temporary organization designed to search for a repeatable and scalable business model.” Hence, an already existing, profitable and operating business or one that is simply repeating a proven business model really isn’t a startup, thereby disqualifying much of those “venture” companies in Korea.
Author of “Startup Lessons Learned,” Eric Ries, defines a startup as, “a human institution designed to deliver a new product or service under conditions of extreme uncertainty.” So it isn’t just any new business, but one that is trying something new. “Extreme uncertainty” obviously means risk – and that there’s a pretty good chance of failure too.
Natalie Robehmed writing for Forbes magazine asked just this same question and came up with quite a few interesting answers, not the least of which was, “Somewhat ironically, when a startup becomes profitable it is likely moving away from startuphood.”
So, to put it in layman’s terms, a startup is a person or group of people with an idea who are trying to figure out how to turn that idea into a business. Once you have profits and are instead trying to refine systems and grow profits, you’re not a startup anymore.
So now that we’ve established what a startup is, and we’ve heard all this talk about how Korea is the next big place for startups in Asia, the question is, like so many things in Korea, is it all hype, or is there something there? Is Korea really fertile ground for startups?
Facing Up to the Challenges
“Work at a chaebol, son.”
Anyone who lived in Korea during the financial crisis of ‘97 knows that it left an indelible scar on the generation coming of age during that time. Small businesses went under at an unfathomable rate during “the IMF” as it’s called, named after the organization that bailed out Korea at the time. Fathers, mothers, aunts and uncles all lost businesses. Everyone knew someone who had lost everything. Meanwhile in the US companies were in their original dotcom heyday, and many people were building companies and becoming millionaires and billionaires. Then the first dotcom bubble burst in 2001, and along with it any chance of Koreans ever thinking that striking out on your own was a good idea for a generation.
The safety and security of civil servant positions went from being poo-pooed to hugely sought after, with competition for jobs shooting up to hundreds testing for every civil servant position. The only thing better than being in a secure but poor-paying government job was joining one of the remaining chaebols. Many chaebols had gone under too, but that only meant less competitors and an even larger percentage of the economy being occupied by those that remained.
As Steven Baek, Principal at VC/Incubator FuturePlay puts it, “The generation of kids who grew up in the 90’s saw their parents lose their jobs and businesses thanks to the country’s bankruptcy and the dotcom bubble. Only the big giants like Samsung, LG, Hyundai survived and there were no other major players left anymore. So people only saw the extreme volatility and danger in taking risks and running your own business. Parents started telling their kids to not take any risks. As a result, we live in a society where people think that the smartest choice for talented young people is to work for the same big conglomerates. Most people shy away from starting their own business and instead choose safe and stable jobs with slim promise for a big payout. But for Korea to see the next Steve Jobs or Mark Zuckerberg, and to create the next Google or Amazon, we need kids taking more risks.”
Hence, the refrain became, “Make your parents proud. Get a spot at a chaebol, honey.” And so, for the last decade or more, the brightest minds of the nation have gone to work with the big boys, and the big boys have benefited immensely from it.
Someone’s Gotta Buy
When you’re a spunky little upstart, you have two goals: disruption and/or exit. Disruption is when you completely revolutionize an industry with a radical new idea, and your exit can come in the form of an acquisition of your company or going public, thereby giving you the option to easily cash out at any time.
Another challenge that domestic businesses have seen is that to achieve that second goal, someone’s gotta buy, and the chaebol traditionally just didn’t buy early stage companies. Up until a few years ago, the only hope for any firm was to work hard for 10 years or more and go public through an IPO (initial public offering). You couldn’t point to many small to medium players who grew a talented staff and customer base and then exited by being acquired by a large Korean firm. A quote from a December 2011 Inc. Magazine article by Max Chafkin:
“The Chaebol don’t buy companies,” says Chester Roh, a serial entrepreneur and angel investor who has taken one company public and sold one to Google. “They don’t need to. They just call you up and say, ‘We’ll give you a good job.’”
This continues to hinder the appeal of being part of a startup for young people, but it also poses a danger to the large firms that continue to rely completely on internal development for new technology or, instead, throw money at copying a small competitor with a smart idea – otherwise known as “benchmarking.” If there’s anything that is a consistently common attitude amongst all of the VC, incubators, accelerators, inventors and entrepreneurs that we talked to, it is that they are looking abroad for an out rather than domestically. They are on the lookout for products that have a world-wide appeal, rather than for products that cater to the Korean market.
This problem was on the mind of Blue Point Partners CEO, Yong-kwan Lee, when he explained to us that, “One extreme danger to Korea is that while the large Korean companies are doing well, the companies that we are incubating are not looking to be acquired by a domestic Korean company, but instead looking at Google and Facebook. That’s because those companies have a much more cooperative attitude toward their smaller partners and they are much more likely to seek to acquire them at some point. If this trend continues, then Korea’s largest companies are going to miss out on some of the most forward-thinking new ideas this country has to offer. Google has already acquired over 150 companies in every field from energy to robotics to IT.”
Korea’s Startup Culture Comes of Age
Accelerators & Incubators vs. Angels & VCs
For every startup, there are two things that are necessary to bring its ideas to fruition: capital and expertise. Incubators and Accelerators are heavy on the expertise and light on the capital, while Angel Investors & Venture Capitalists (VCs) are heavy on the capital.
An accelerator is a short-term program that typically runs from 3 to 6 months. They provide office space, expertise, professional services and a community to startups and often invest a relatively small amount of capital. In exchange, they take a small percentage of the company, usually 5% – 10%.
An incubator usually offers a longer-term period, often a year or longer. They provide the same office space, services, etc. but they are likely to provide more expertise and more initial capital. They can take 20% or more of the ownership, too.
An Angel Investor is usually a single wealthy investor who provides capital to a fledgling company, usually in exchange for part ownership. They provide moderate levels of funding, anywhere from a few thousand US$ up to a couple million US$. They may provide some mentorship or introductions, but it’s not an official part of their role in the exchange.
VCs are all about the money. They are companies that can bring tens of millions or even hundreds of millions of dollars to the table, and they are looking for a solid chunk of the ownership in exchange for it. Someone on the team may have a chat with you and give you some mentoring, but that’s not their primary objective.
Establishing the Institutions
Until just the last few years there were no accelerators or incubators operating in Korea, leaving many would-be entrepreneurs operating on their own. Many still manage to find success, and now the first generation of successful Korean entrepreneurs is helping build and finance these institutions for the coming era. (See sidebars)
First there was D.Camp. Founded by Dreambank, an organization set up by 20 banks to assist startups, D.Camp came to life in 2012. Their 45,000-square-foot (4,000-square-meter) facility just opened in March of 2013 – barely a year and a half ago. They now engage in a variety of accelerator, incubator and educational activities.
This past April saw the opening of Maru 180, a building conceived from the beginning as a hub for the startup culture in Korea. Housing a variety of venture capitalist companies as well as incubators and accelerators, the entire concept behind the 38,000-square-foot (3,500-square-meter) space is to get the VC and startups to co-habitate. In this way the startups can be close to their mentors and they can get immediate feedback on ideas that may pop up. Perhaps the best part is the coffee shop. Open to the public, anyone can drop by the first floor and pay W10,000 to get unlimited coffee or herbal tea for 24 hours, just to keep the creative juices flowing.
Meanwhile, Blue Point Partners recently formally opened up its building in July, and they just held their first open house at their Daegu location very near the KAIST campus last month. This incubator and VC combination operation is looking strictly for high-tech engineers from the nation’s science and engineering schools.
Oh, and did we mention that Google is coming? Details are hard to come by, but Google has announced that they will be opening a Google Campus to Seoul in 2015. They’ve already partnered with many local operations on community and educational projects, but it also appears they’ll have their very own footprint here in Seoul very soon.
Your visa determines what you can and cannot do in this country, and if you’re a non-Korean thinking about staying here, working on a startup of your own, or joining a startup team, here is a quick and simple guide to the available visas that can be applied for.
Short Term Visas: These are only good for people who do not need to be in the country for an extended period of time. This includes travelers (B-2), visiting journalists (C-1), and short-term business travelers (C-2).
Long Term Visas: These are the visas that are required if you wish to stay in Korea to study, work, or establish a business. Many of these visas are for very specific groups, so we will focus on those that are beneficial to those seeking employment. The following are all long-term visas.
D-2 (유학)Students: The D-2 visa is issued to students who are studying abroad in South Korea at the undergraduate level or above. Holders of this visa type are prohibited from working full-time, but can work part-time for up to 20 hours per week.
D-8 (기업투자) Corporate/Foreign Investors: This visa is for those seeking to own or operate a small to medium sized business. In order to qualify for this visa, an investment of W100 million is required. This number may increase within the next few years.
D-8-4 (기술창업비자)Startups: This is a relatively new visa that is specifically for those seeking to run a startup company in Korea. It can be applied for while on a D-10 visa. In order to be eligible for a D-8-4 visa, you need a bachelor’s degree or higher, a corporate establishment and registration/business registration, and intellectual property rights/technologies corresponding to intellectual property rights. The D-8-4 visa is good for 1 year, but may be renewed based on performance.
D-10 (구직비자)Job Seekers: This visa is for those who are seeking employment in the country. It allows up to a maximum of 6 months to find a new job and up to a maximum of 90 days outside of Korea. Only those who previously held a long-term visa may apply for the D-10 visa. D-10 visa allows you to prepare a business startup but other economic activities are not permitted.
E-1 (교수)University Professors: This visa is for lecturers and researchers in a field of expertise.
E-2 (회화지도)Foreign Language Instructors: Foreign language teachers must be a native resident of a country whose mother tongue is the same as the language they will teach in order to qualify for this visa. A bachelors degree is also required.
F-2 (거주)Long-Term Residents: This visa is granted to those who hold an eligible visa (including the E-2, D-2, D-8, and D-10 visas), have been residing in South Korea for over 1 year, and reach 80 points out of a possible 120 in a scoring system calculated by age, income, Korean language ability, academic qualifications, and volunteer work. Holders of this visa type are exempt from the minimum foreign investment requirement to start a business.
F-4 (재외동포)Overseas Koreans: This visa is specifically for people who are of Korean descent, but are not legal citizens of Korea. This includes those who have immediate family members who were born in Korea and overseas Korean adoptees. The F-4 visa grants the holder the ability to travel to Korea without employment sponsorship, study at a university, and/or hold a professional occupation.
F-5 (영주)Permanent Foreign Residents: D-8 visa holders who satisfy requirements prescribed by the Minister of Justice, such as staying in Korea for 3 years or longer, incorporation, hiring more than 2 KoreaGoogle Campus to Seoul in 2015ns, and investment attraction of W300 million or more are eligible for this visa. Those who have been living in Korea under the F-2 or F-6 visa may also be eligible for the F-5 visa. This visa does not expire and does not require sponsorship.
Note: Visa laws and requirements are subject to drastic changes over the course of a short period of time. Be sure to check with the Korean Immigration Office for the latest information.
Based in Daejeon, (home of the country’s #1 science and engineering school, KAIST) Blue Point works closely with all of the national science and technology universities to find the best ideas of professors and students alike, help them get their ideas to the startup stage and find investors.
Fashion Tech Accelerator (FT Accelerator) is a 3-month program (extendable to 5-months) for those companies looking to get into the fashion tech industry. They have offices in Milan, Seoul and Silicon Valley.
Self-proclaimed “company builder,” Fast Track Asia refuses to take on the labels of accelerator or incubator. It was founded by the founders and investors of Ticket Monster after it was acquired by Living Social.
Focusing on experienced people who are in the tech industry, particularly with Chaebol, FuturePlay gives participants in its incubator a substantial salary for up to a year while they work on their startup.
K-startup operates under a partnership with Google For Entrepreneurs, SKPlanet, and the Banks foundation. They provide mentoring, workshops and events, and access to a network of entrepreneurs, executives, and investors in a 3-month program.