The '3 Major Obstacles' Blocking Startup Growth: Funding, Costs, and Workforce Shortages

Survey of 259 Startups by Sangui
4 out of 10 Startups Face "Funding Difficulties"

Seoul Jung-gu Korea Chamber of Commerce and Industry. Photo by Jinhyung Kang aymsdream@

A survey revealed that the domestic startup sector is facing growth challenges due to tight finances caused by difficulties in fundraising and increased costs from rising prices.

The Korea Chamber of Commerce and Industry (KCCI) announced that in the '2023 Startup Challenges and Policy Tasks' survey conducted on 259 domestic startups, 4 out of 10 startups reported experiencing growth difficulties due to 'fundraising problems.' Following this, the main challenges cited were 'cost increases due to rising prices (38.2%),' 'labor shortages (22.0%),' and 'securing domestic and international sales channels (18.1%).'

The CEO of shared workspace startup Company A said, "Our sales plummeted during the COVID-19 pandemic, making company operations very difficult. Although sales temporarily recovered after COVID, fundraising remains challenging, and accumulated deficits continue to grow." He added, "We have let go of all five full-time employees and are only employing one part-time worker, but even that is difficult, so we are considering shutting down the business entirely and pivoting to another industry."

The CEO of Company B, which provides smart tourism services, said, "We moved our office to Gangnam, the most preferred workplace for IT professionals, to recruit IT experts." He added, "We are worried because we now have to bear the unexpected burden of increased rent."

4 out of 10 startups say 'business conditions are worse than last year'... only 14.6% say 'conditions have improved'

The ongoing management difficulties in the startup sector since last year appear to persist this year as well. 40.2% of respondents said business conditions have worsened compared to last year. When asked why, 'domestic market sluggishness (60.6%)' was the most cited reason, followed by 'deterioration of startup investment environment (37.5%)' and 'continued 3 highs phenomenon (37.5%).'

KCCI stated that only 1 in 10 respondent companies said 'investment attraction has increased compared to a year ago,' indicating that the spark of investment has yet to revive. However, last year's survey showed that 36% said 'investment attraction decreased compared to a year ago,' whereas this year the figure dropped to 16.6%, suggesting that the degree of deterioration has somewhat lessened.

When asked about the top priority for developing the startup ecosystem, 'investment activation (44.0%)' was the most selected, followed by 'linking sales channels between large/mid-sized companies and startups (33.6%),' 'deregulation in new industry sectors (20.1%),' and 'technology exchange between large/mid-sized companies and startups (12.7%).'

A KCCI official said, "Investment activation, sales channel linkage, and technology exchange can be addressed through open innovation." He added, "Collaboration with large and mid-sized companies can be a triple-win option for startups by enabling additional investment attraction, advancement of technology and business models, and linkage to B2B (business-to-business) and B2G (business-to-government) sales channels." KCCI emphasized that large companies can also enter new businesses and advance R&D by utilizing startups' innovative technologies through open innovation.

Open innovation refers to a method of utilizing external resources such as universities, mid-sized companies, and startups in the process of technology and product development to drive corporate innovation. Large companies can secure partnership opportunities with promising companies and technologies with minimal initial investment, while startups can reduce the time and cost to showcase their technologies in the market and secure sales channels, thereby gaining growth opportunities.

Kang Myung-su, Head of the Public Business Division at KCCI, said, "In the era of the 4th Industrial Revolution, where convergence of advanced technologies is active, open innovation is not an option but a necessity." He emphasized, "In line with the government's 'Startup Korea Comprehensive Plan' announced last August, KCCI will also focus on its role as a private platform by connecting member large and mid-sized companies with promising startups and expanding investor matching projects."

This content was produced with the assistance of AI translation services.