Building a thriving start-up ecosystem in South Korea

South Korea is home to a thriving and growing start-up ecosystem but like everywhere in the world, COVID-19 created big challenges for micro, small and medium enterprises (MSMEs).

We spoke with Josh Choi, Business Development Director of the Korea Startup Forum, about how they’re supporting MSMEs through COVID-19 and beyond, with support from our COVID-19 Rapid Response and Recovery programme with Google.org.

Can you explain what the Korea Startup Forum is and what it does?

The Korea Startup Forum is a non-profit and South Korea’s biggest start-up member organisation with more than 1,500 registered members. It was founded five years ago by a small group of entrepreneurs and within just four years, we’ve become Korea’s main organisation for representing start-ups. We offer various MSME support programmes and we also do a lot of policy related activities to advocate for a start-up-friendly regulatory framework. We also provide legal consultation and connect MSMEs with potential business partners, such as bigger companies or venture capitalists (VCs).

What kind of businesses do you support?

We really support all kinds of MSMEs, from early stage to more established ones and from many different industries. Currently our members represent 21 different industries from FinTech and Artificial Intelligence (AI) to agriculture, it’s very diverse.

How has COVID-19 affected micro, small and medium enterprises (MSMEs) in South Korea?

The first couple of months of the outbreak, February and March 2020, were chaos. Quite a lot of Korean MSMEs export goods to the international market and suddenly all logistics were frozen. This meant that many small and medium sized enterprises lost their sales, which was a big problem as they didn’t have cash reserves to make up for the losses. And of course all industries that rely on face-to-face interactions and physical activities, like travel or leisure activities, were badly affected. Of course those kind of businesses can reach out to customers online but their services can only really be provided offline, which was a big problem, especially at the beginning of the COVID-19 pandemic. In addition, many early-stage start-ups rely on funds from investors, like VCs, to survive while they’re not yet making any profit. But at the start of the pandemic, all funds were frozen which caused a massive issue.

What is the situation now?

The situation has been getting better from the second half of 2020, for one due to urgent financing and funding from the government but also because people got used to doing business online and not face-to-face. Some MSMEs have actually been able to use this to their advantage and grow. It may be difficult for big, established companies to transform their culture and organisational structure to adjust to the radical changes we have seen in the last year. Many MSMEs on the other hand have pivoted their services very quickly and came up with new ideas.

One of the services you offer to entrepreneurs as part of the Rapid Response and Recovery programme with Google.org is legal counselling. Why is this important in the COVID-19 context?

COVID-19 and the way it changed the world of business created new legal challenges for MSMEs. As I mentioned earlier, many small and medium sized enterprises in South Korea experienced financial issues during the pandemic due to loss of export sales and frozen funds. So we provided legal guidance on equity sharing and how to merge with bigger companies so that these small businesses can survive and restart with a new business model. Businesses that used to rely on face-to-face interactions were met with the challenge of radically transforming their business model to operate primarily online. They suddenly found themselves in an unfamiliar legal framework and having to deal with questions like how to ensure a digital signature is valid and trustworthy and how to create digital contracts and documents. We ran a legal seminar to help navigate these challenges, which was very much welcomed by MSMEs.

Can you tell me more about your reverse pitching event?

We launched reverse pitching in the second half of 2020 when venture capital funds (VCs) were unfrozen and started looking for businesses to invest in again. South Korea has over 200 or 300 VCs and we thought why do entrepreneurs always have to pitch their businesses to them and compete for their investment? VCs also have to compete with each other for the best start-ups. And we think that entrepreneurs should be able to choose the best VC for their business. That’s why we created reverse pitching, where VCs pitched themselves to start-ups. This was very much welcomed by entrepreneurs who asked VCs a lot of questions. We believe that creating a more equal relationship between VCs and start-ups will be beneficial to the growth of the start-up ecosystem in South Korea.

What other support services have you offered to entrepreneurs as part of the COVID-19 Rapid Response and Recovery programme with Google.org?

We held our Growth Talk Live webinar which was focussed on how entrepreneurs can continue to grow their business during COVID-19 by harnessing customer data. As many MSMEs transformed into digital businesses, they had the opportunity to gather more customer data and deepen their understanding of what their customers want. We invited successful entrepreneurs and data experts from top start-ups to speak on this topic.

Another initiative we launched as part of the programme is our StartUp Newsweek Newsletter. We found that many MSMEs don’t have enough funding for proper marketing so even if they come up with interesting and promising business models to overcome COVID-19, nobody talks about it. So we started sending out a newsletter which introduces carefully selected MSMEs to about 250 to 300 journalists from the tech and start-up media. We send this every two weeks and open rates are really high because journalists are always looking for interesting stories. Being featured in a news article gives MSMEs great exposure to the public and attracts more customers.

What are your thoughts on the Korean government’s support for MSMEs? What policy changes are you advocating for?

The financial support for MSMEs from the Korean government is great. Every year, the Ministry for Small and Medium Enterprises (SMEs) and Startups makes about two billion US dollars available for start-up investment. There a very few countries in the world that pour this amount of money into SMEs and start-ups. But on the other hand, regulations policy is very conservative. In the US for example, everything is possible until it’s illegal. In South Korea, every new approach is illegal until it’s declared legal. There is a mismatch – start-ups are able to secure a lot of funds due to their innovative business models but then they are immediately faced with regulations that prevent them from actually deploying their business model. This is one of the reasons why we offer legal counselling to MSMEs. During the COVID-19 situation, the government has made some changes and become more open and proactive in creating a start-up friendly ecosystem as a lot of start-ups were failing. But it wasn’t enough. We advocate for more freedom for start-ups in the legal framework.

Can you tell me more about your upcoming project with North Korean defectors?

There are quite a lot of North Korean defector entrepreneurs in South Korea but, as you can imagine, the social and business systems are totally different here. The defectors also lack digital literacy. They need support to integrate into the South Korean businesses ecosystem so they can grow and scale their business. But I, for example, am not from North Korea so while of course I can provide some coaching to North Korean defector entrepreneurs, I can’t truly understand the challenges and difficulties they are facing. Some knowledge that may be basic for me probably isn’t basic for them. So if I don’t have that level of understanding, I won’t be able to provide effective coaching. This is why we are collaborating with another NGO on a ‘training the trainer’ programme for North Korean entrepreneurs who have already grown their business to a certain level. They will learn coaching and digital literacy skills so that they can then support and coach other North Korean defector entrepreneurs to start and grow a business. There are more than one million North Korean defectors currently living in South Korea so it is very important that we offer support to integrate them into South Korean society and business.

What support are you offering to MSMEs in 2021?

In 2020, we were focussed on supporting businesses to recover from the impact of COVID-19 through training, mentoring and consultation. In 2021, we are focussing more on providing business networking opportunities for MSMEs to meet potential businesses partners and customers and secure funding. We will run a demo day for MSMEs as well as business partnership days with different themes to connect entrepreneurs with the right potential business partners for them, particularly big companies, to create ‘Open Innovation’. In South Korea, ‘Open Innovation’ refers to big companies importing MSMEs’ disruptive technologies and ideas in exchange for providing a range of support to them, such as strategic investment, business networking, advice, etc. Both parties benefit and grow from the partnership. That’s why we as Korea Startup Forum are actively encouraging big companies to join us at various events to find innovative MSMEs and partner with them. We will also continue to support MSMEs with adopting digital marketing tools so they can reach more customers.

To find out more about Korea Startup Forum’s work, visit their website.