"You Learn by Failing"... The Reason Behind Denmark's Low Startup Survival Rate

"In Denmark, people start and close startups more freely than in Korea."

Lee Kanghoo, CEO of the AI startup Upsite, who participated in Denmark's startup incubation program "Next Generation" two years ago, described Denmark's startup environment as one that does not fear failure. He explained that in Denmark, there are many founders who experience failure with a startup but then switch industries and launch new startups.

According to the latest edition of "Analysis of the Danish Startup Ecosystem" published by the Danish Ministry of Industry, Business and Financial Affairs, the five-year survival rate of Danish startups is 36%, which is lower than that of other Nordic countries such as Sweden (63%), Finland (48%), and Norway (37%). This is because Denmark has a much higher startup rate than Sweden or Norway. Denmark's startup rate exceeds 10%, which is higher than the OECD average.

A scene of startup CEOs from various countries around the world gathered for a meeting. DALL-E3

Denmark is actively encouraging startup creation. Every year in Copenhagen, the "Tech BBQ" startup festival is held. Last year, 2,000 startups participated, and the number of attendees reached about 8,000. More than 1,200 investors also attended, providing startups with real opportunities for growth. The Danish Ministry of Industry, Business and Financial Affairs stated, "Although the survival rate of Danish startups appears low, it is important to note that the startup rate is exceptionally high," adding, "It is crucial to provide opportunities for promising entrepreneurs to grow. When startups with low business viability close, resources can be redirected to more promising projects."

It is noteworthy that startups based on university research facilities, so-called deep tech startups, have a higher survival rate. Mikkel Sorensen, Director of Skylab at the Technical University of Denmark, said in an interview with Asia Economy, "The three-year survival rate of startups from the Technical University of Denmark is about 61%," adding, "In particular, startups based on intellectual property (IP) have a survival rate of 92%."

Denmark is exploring ways to increase the survival rate of startups. The Technical University of Denmark launched the Next Generation program in 2018 to help startup founders find solutions to the challenges they face in running their businesses. Marie Polman-Larsen, who is in charge of Next Generation, said, "Startups are offering new solutions to the challenges we need to address," adding, "Startup founders can discuss scaling up with more than 300 mentors."

Jung Seunghwan, CEO of Saefarm, who attended Next Generation last year, said, "When I talk with founders of startups that are one or two years old, I find many points of empathy, which leads to ongoing exchanges," adding, "We signed a business agreement with an Indian startup specializing in river water quality management, and we are also discussing the establishment of an agency with a South African startup."

The Danish political community has revised regulations so that startups can continue their business activities even if they are operating at a loss. Last year, the Danish parliament passed what is known as the "Entrepreneur Package" agreement to promote startups. The deduction for carryforward losses, which allows companies to offset net losses incurred in a specific fiscal year against future taxable income, was doubled. The dividend tax on unlisted portfolio shares held by companies was also abolished.