[Inside Chodong] "Spring Has Come, But It's Not Spring" for Startups: Profitability Is Now the Only Way Forward

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Although the season is spring, the atmosphere remains in the midst of a harsh winter. This is the story of the startup industry. Startup investments in the first quarter of this year have significantly decreased compared to last year. On a global scale, the amount has been halved compared to the previous year. The situation in the domestic market is even worse. As it becomes harder to secure investments, many startups are taking measures such as reducing their workforce. Now, for startups, creating a profitable business model has become an urgent priority over the traditional values of technology development or innovation.

Startup information company Crunchbase reported that the global startup investment amount in the first quarter of this year was $76 billion. This is a 53% decrease from $162 billion a year ago. The situation in the largest market, the United States, is similar. Startup market research firms PitchBook and the National Venture Capital Association (NVCA) reported that U.S. startups raised $37 billion from venture capital (VC) in the first quarter. This is a 55% decrease compared to last year and the lowest amount since the fourth quarter of 2019. The number of VC investments in startups also fell below 3,000 deals, the lowest in over five years. Startup investments have been significantly restrained since last year due to the economic downturn. The recent collapse of Silicon Valley Bank (SVB) further froze VC investment sentiment.

The cold wave sweeping the global startup industry has also hit the domestic market. In fact, the chill in Korea is even more severe. According to Startup Alliance, a startup support organization, the domestic startup investment amount in the first quarter of this year was 895.8 billion KRW. This is less than a quarter of last year’s 3.9038 trillion KRW, a staggering 77% decrease.

Given this situation, startup founders often express how challenging the current environment is whenever they meet someone. It feels like just yesterday that money was overflowing in the market, but the atmosphere has drastically changed in just a few years, causing sighs of frustration. Growth strategies that relied on raising investment funds to expand users or enhance technology are no longer effective. What matters now is whether they can generate profits.

This task, which is natural for any company, was often seen as a distant future issue in the startup industry. Many founders regarded their mission as gathering talented members, creating a good working culture, and driving innovation that was difficult within traditional corporate structures. They considered solving real-world problems rather than generating profits as the starting point of their business. It was possible to receive investments and sustain the company based solely on technological capabilities and future prospects, even without profits. This is why many startups that have achieved unicorn status (privately held companies valued at over 1 trillion KRW) in Korea are still operating at a loss.

However, now that the funding sources in the market have dried up, this growth model can no longer be applied. Profit is no longer a goal to be reached later but an immediate survival issue. Choi Hangjip, head of Startup Alliance, said, "Founders are making various efforts to overcome difficulties by cutting costs and refining their revenue models." A profitable structure is not only the foundation for a startup’s independence but also crucial for attracting investments. Startups grow through investments, and investors, who aim to generate returns, have no incentive to invest if startups cannot generate profits and increase corporate value. Although the wind is cold, now may be the time to step up not to shrink back but to create a healthy startup ecosystem.

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