1. beSUCCESS Special Report KOREAN START-UP CATALYSTS: GOVERNMENT’S INITIATIVES July, 2012 EUNSE LEEThe contents in this documents are the intellectual property of bsSUCCESS Co. Ltd. of Korea, and the author. Commercial use ofthe contents is prohibited. Should you have any requests or inquiries regarding commercial use, copying, and/or distribution ofpart or all of the contents, or should you have any comments or suggestions regarding the contents included in this document,please contact beSUCCESS via E-mail (email@example.com) or the author via E-mail (firstname.lastname@example.org).
2. 1/4 Korean Gov. : Probably the Best Gov. for Start-ups, in Terms of Its Support. Why? Surprisingly, Korean Government must be one of the %Unemployment by Age Group best ones for start-ups, in terms of its policies and support. Before we really start looking into them, first (Excerpt, Non-adjusted) let’s take a look at the context – in other words “why”20.0 • K’s Gov is approaching entrepreneurship as a means to resolve the nation’s unemployment, especially among youth15.0 under 29. 20 - 29 (U.S)10.0 • The unemployment rate is much lower than the benchmark, U.S. (Overall) however, the rate for the <29 is about 3 times the average. 5.0 20 - 29 • In terms of the employers’ configuration, large corporations (300+ in K’s legal classification) make up about 20%, while 0.0 Overall the small-sized (<30 employees) 40%. 20 20 20 20 20 20 • Hence, start-ups and venture businesses are K Gov’s primary 07 08 09 10 11 12 concern for the nation’s economy dynamism & productivity. Source: KOSIS, Bureau of Labor and Statistics (“BLS”) Employment by Employer Size %Employee to Total by Employer Size10,000,000 50% 8,000,000 5-9 40% 10 - 29 6,000,000 30% 30 - 99 < 30 4,000,000 100 - 299 20% 300 < 2,000,000 300 - 499 10% 500 < 0 0% 2007 2008 2009 2010 2007 2008 2009 2010 Source: KOSIS Source: KOSIS CATALYSTS FOR START-UPS: GOVERNMENT’S INITIATIVES
3. 2/4Overview – K’s Gov’s Initiatives to Support Start-ups and Venture Businesses At the heart of the Government’s efforts to support start-ups and venture businesses is SMBA (Small and Medium Business Administration). Among many of its policies for Korea’s small and medium businesses, SMBA offers support in business incubation, management, and finance for start-ups. (See SMBA’s website: http://eng.smba.go.kr/main.jsp)Management Support Financial Support Government-backed• Business centers for creative • Loans: seed loan (Up to KRW Supports through businesses: offers 70M), working capital loan (Up KIBO (http://www.kotec.or.kr/) tax/accounting/legal/IP/mgmt to KRW 500M) at 2.7% per • When starting up especially consulting and learning annum in or based on technology, opportunities • Gov-backed: For start-ups (Up KIBO evaluates the value of• App-development Center: to KRW 100M), For social the tech and backs the offers education about mobile enterprises (Up to KRW 400M) financial transactions needed. platforms and programming • VC/Fund Management: • When backed by KIBO, one• Global App Center: offers regulate VC and manage FoF can get more favorable translations, PR material, IP • M&A Support: firm evaluation, terms from financial protection, overseas consulting, PR support, etc. institutions and VC. publishing, etc • Venture Business Certification • Also, certified by KIBO, one• Graduate Schools for & Senior Start-up Support can get benefits in tax, Young Entrepreneurs finance and IPO, marketing. Incubation • KIBO invests in SME in • Business centers for creative businesses: offers stocks (common/preferred), tax/accounting/legal/IP/mgmt consulting and CB, or/and BW should it be learning opportunities appropriate. • App-development Center: offers education about • It also backs the certified mobile platforms and programming business in M&A with CB • Global App Center: offers translations, PR or/and BW. material, IP protection, overseas publishing, etc • Venture Business Cluster Management CATALYSTS FOR START-UPS: GOVERNMENT’S INITIATIVES
4. 3/4Overview – Korea Venture Fund (“KVF”, FoF) Initiated by the Government under the Act on Special Measures for the Promotion of Venture Businesses, Korea Fund of Funds was constructed in 2005, and closed in the end of 2009 at a total value of KRW 1.148T with the goal to serve as a liquidity and investment source for venture capital funds and to present global standards in venture fund operation. KVF Structure MGMT Process LP Sourcing Early Stage (Limited Partner) LP KVF is managed by KVIC Secondary Portfolio Construction (Limited Partner) (Korea Venture Investment LP Corp.) Industry- Due Diligence & (Limited Partner) • Established in 2005 focused Closing • Is currently managing funds, LP worth USD 1.5B (Limited • Invests in top-tier funds of Turn-around Monitoring Partner) VC and mid-cap buyout LP funds in Korea Other Top-tier Reporting & Evaluation (Limited Partner) Government, Domestic Top-tier Overseas Capitals, Venture Funds Profit Realization Etc (Source: KVIC)• KVIC is also sourcing and managing funds outside KVF. Government’s funding to KVF in 2012 is expected to be KRW 117.5 B.• Korean Government recently announced to stop funding to KVF in the near future as funding is sufficient. CATALYSTS FOR START-UPS: GOVERNMENT’S INITIATIVES
5. 4/4Other Start-up Supporting Initiatives and Challenges Though the Government is making much effort to promote start-ups and venture businesses in Korea, the fact is that there are still many challenges to be fought so that the efforts have greater impact. First, most of start-ups and venture business are accrued in and around Seoul and the metropolitan area and this is leading to inefficient use and allocation of the Government’s budget to promote entrepreneurship. In order to tackle this challenge, KVIC and local governments are working together to construct local angel- matching funds for the local entrepreneurs. This year, the City of Busan is constructing “Busan Angel Investment Matching Fund” as the start of such an effort. Second, we are fans of the fairer sex however starting up is still a game for dudes. Ministry of Gender Equality & Family is offering seed loans and learning opportunities for female entrepreneurs so as to solve the problem. However, it has been constantly pointed out that loans are not the most effective means to promote entrepreneurial activities, and especially not for female entrepreneurs who possess relatively weak financial background to back the loans. Third, we have been arguing that in order to further promote entrepreneurial activities in Korea, we need more solid exit mechanism and exit models for the investors, for start-ups can’t last very long without constant financial support from them. However, as we have looked in our previous reports (on K’s VC: http://ow.ly/bUaZI ; on K’s angel investors: http://ow.ly/c3by9) IPO s for start-ups as the investors’ exit means is barely possible. To tackle that challenge and to provide financial liquidity and growth resource for start-ups and other early/growth-stage companies, the Government constructed an exclusive capital market in 2000 for the them, called Freeboard – sort of OTC market for Pre-KOSDAQ companies. Sadly, it’s been cold-shouldered for many reasons. Good thing is that, after our long protestation, the concerns are finally moving toward M&A over the equity market. As we have looked at in this report, KIBO is offering direct investments to M&A candidate companies and SMBA and some other government agencies are offering promotional plans to encourage merger and acquisition. In addition to that, we suggest that the government’s concerns also be paid to broadening the possible buyers pool, both domestic and international, and dealing with the related issues. - Eunse Lee, Seoul, Korea CATALYSTS FOR START-UPS: GOVERNMENT’S INITIATIVES