[The Editors' Verdict]Plenty of Startups, But Little Growth

Building a Foundation to Withstand the Scale-Up Winter
A Virtuous Cycle of Growth and Exit Through M&A Is Essential

Korea is a country where starting a business is relatively easy, but surviving is difficult. Confronted with this simple yet painful reality, even as Korea positions itself as a powerhouse of ventures, we find ourselves repeating the age-old question: "Is there not enough support?" The five-year survival rate for domestic startups has long been stuck in the mid-30% range, below the average of major countries. It is difficult to assert that this figure is absolutely low, but compared to the pace at which new businesses are being launched, the number remains unimpressive.

Over the past decade, the scale of government support for startups has grown dramatically, with a significant portion focused on the pre-seed and early stages. At these stages, there is relatively ample opportunity for business funding and seed investment. The problem arises after this point. Once companies begin to generate revenue and require full-scale production or global expansion—during the Series B and C rounds, or the scaling-up phase—the intensity of support fades, and startups are left to fend for themselves in a harsh environment.

To advance to the next level, tens of billions of won in funding are needed. However, government support is rarely available due to restrictions based on years in business, while private capital dries up in the face of uncertainties in exit markets. In the early stages, startups are able to hang on, benefiting from the warmth of government support, but in the so-called "death valley" phase, they become truly isolated in the valley.

The mismatch between the private investment ecosystem and government support structures persists. Policy funds still chase rigid indicators such as employment numbers and the number of patents. Growth-oriented companies that must accept losses to explore and develop new markets are often pushed into being labeled "potentially insolvent" due to these hurdles. This background explains why companies waste their momentum for innovation by focusing on meeting support criteria rather than responding to market forces.

To fix this structure, it is necessary to boldly reallocate the share of the Korea Fund of Funds, which is currently concentrated in the early startup stage, and to vitalize venture loan models in collaboration with the private financial sector. In other words, there must be broader channels to secure funds needed for business expansion without diluting ownership. Furthermore, it is necessary to shift the evaluation criteria away from metrics like the number of employees, and instead highlight market validation indicators such as the share of global sales and repurchase rates.

Another urgent issue is the realization of exit pathways. The domestic venture investment exit market is still heavily biased toward initial public offerings (IPOs). In contrast, in leading venture nations like the United States and Israel, most exits occur through mergers and acquisitions (M&A).

When large companies acquire growth-stage companies, regulations on affiliation should be applied more flexibly for a certain period, so that M&A can serve as a conduit for absorbing innovation, not just superficial expansion. If exit routes are blocked, follow-on investments shrink, inevitably leading to stagnation in growth—a vicious cycle.

Starting a business is only the beginning. What matters is not how many companies are launched, but how many advance to the next stage. It is time to shift the policy focus away from merely increasing the number of startups and tracking those statistics, and toward meticulously supporting the entire process of business growth and exit.

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