[Inside Chodong] Where Will the 'Spring Days' for Startups Arrive?

Kim Cheol-hyun, Deputy Director of the Bio Startup and Venture Department

"In 2023, the domestic venture investment market demonstrated superior recovery capabilities compared to major overseas countries," said Oh Young-joo, Minister of the Ministry of SMEs and Startups, while recently announcing domestic venture investment trends. Although Korea's venture investment decreased compared to the exceptional surge in 2021-2022 due to liquidity expansion, the recovery trend last year was clearly evident when compared to the US and Europe. The Ministry of SMEs and Startups provided a detailed explanation. Comparing venture investments in Korea, Europe, and the US with those in 2020, domestic venture investment increased by 22% last year, while Europe saw only a 4% increase and the US experienced a 1% decrease. Moreover, domestic venture investment amounts rose from 1.8 trillion KRW in Q1 to 2.7 trillion KRW in Q2, 3.2 trillion KRW in Q3, and 3.3 trillion KRW in Q4, showing growth toward the second half of the year. These details raise expectations that the shadow of the 'investment winter' cast over startups may finally be lifting.

However, the field has yet to feel this 'recovery.' Startup CEOs met during reporting still express difficulties in securing investments. Few mentioned improvements in the investment environment. In fact, a joint survey by Startup Alliance and Open Survey found that 76.5% of startup founders responded that the startup ecosystem atmosphere worsened compared to the previous year. More than half cited investment contraction as the reason. Additionally, 63.0% of founders said it became harder to attract investment compared to the previous year.

Why is there such a stark contrast between the government's explanation that venture investment is recovering and relatively favorable compared to other countries, and the atmosphere on the ground? One reason could be the concentration phenomenon by industry and business age. Last year, AI semiconductors and robots emerged prominently. Consequently, investment in the ICT sector surged by 62.7% year-on-year to 1.3933 trillion KRW. Investment in the electrical, mechanical, and equipment sectors also increased by 39.7% to 1.509 trillion KRW. Conversely, ICT services, which accounted for the largest share at 28.1% in 2022, decreased by 36.5%. The bio and medical fields, the next largest sector, also declined by 12.3%. Investment in distribution and service sectors dropped by 43.3%, nearly halving. This contrasts sharply with 2022, when nearly 60% of total investment was concentrated in the three sectors of ICT services, distribution and services, and bio and medical.

The preference for stable investments also intensified the chill felt in the field. Looking at companies that received investment last year by business age, investment in early-stage companies under three years decreased by 20.2%. This significantly exceeds the overall venture investment decline rate of 12% year-on-year last year. In 2022, 3.3594 trillion KRW of investment supported the growth of early startups, but last year it decreased to 2.6808 trillion KRW. Conversely, new investment in later-stage companies over seven years old increased by 6.9%. This means that while spring is coming to the startup industry, the places receiving the most sunlight are limited.

The fact that investment trends changed drastically within a year and that investment in early startups sharply declined are points of concern. Although the government emphasizes the 'deep tech' sector, which requires long-term investment this year, it is not easy to expect the emergence of startups that will consistently focus on technology development in an environment where investment trends are rapidly changing and early-stage investment is shrinking. What is needed for a healthy startup ecosystem is not just a 'recovery' in venture investment but also detailed support measures that encompass the entire ecosystem.

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