South Korean Startup Support Gets Mixed Reception; Plan’s First Year Raises Efficacy Concerns; Government Says Project Continues to Improve

South Korean Startup Support Gets Mixed Reception

Plan’s First Year Raises Efficacy Concerns; Government Says Project Continues to Improve

JONATHAN CHENG

Updated Feb. 10, 2014 9:01 p.m. ET

SEOUL—Government officials here hope that a thriving local startup scene could soon put fresh Korean technology names on the global stage—and they are sparing no expense to make it happen.

A sprawling bureaucracy and little expertise in the field, however, have raised questions about how well the initial flood of government money is being spent.

Over the past year, an alphabet soup of ministries and agencies bearing acronyms including KISA, NIPA, KOTRA, KISED and KOCCA has begun spending a budgeted $3 billion on startup competitions and handouts to young tech developers.

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They have also bankrolled a series of overseas programs that have brought young South Korean entrepreneurs to Silicon Valley, London, Israel and Singapore in whirlwind trips that typically last a week.

The hope is to support domestic startups and expose them to the best ideas around the world, in hopes of spurring job growth and lessening the economy’s reliance on conglomerates such asSamsung005930.SE +1.02% Hyundai005380.SE 0.00% and LG003550.SE -1.08%

South Korea isn’t the only country in Asia where a new spirit of tech entrepreneurialism is taking root with a nudge from policy makers. In Japan, Prime Minister Shinzo Abe has proposed tax incentives and made loans easier for startups to secure. In China, where the state tends to play a bigger role in the business sector, local governments regularly subsidize and invest in the startup accelerators that nurture young tech companies.

So far, the Korean government’s attempts to help startups have shown some signs of early success. VCNC Inc., a Seoul-based startup that makes a social-networking app for couples called Between, sent its team on four government trips last year—two to Singapore, one to Silicon Valley and another to Boston.

Edward Lee, a 29-year-old developer at VCNC, joined the two government-sponsored programs to Singapore, including one in December that gave 10 burgeoning Korean companies a monthlong crash course at a local startup accelerator.

“The month that the government provided for us was very helpful and was very important in terms of team building,” says Mr. Lee, who is now finishing up paperwork to incorporate VCNC in Singapore. “For us, it was the right thing at the right time.”

Despite VCNC’s positive assessment, some venture capitalists and entrepreneurs warn that the government intervention, though well-intentioned, has led to duplication, inefficiencies and may be distorting the ecosystem with initiatives that do little to help startups, or even set them back.

“There are too many departments pursuing similar policies,” says Charles Pyo, a 28-year-old entrepreneur whose company, Wizard Works Inc., makes a note-taking app aimed at women called SomNote.

But Mr. Pyo, who has also availed himself of the government aid, said some official backing was needed in a market such as Korea’s, which doesn’t have the same ecosystem of investors that exists in Silicon Valley and elsewhere.

“The government just threw money around last year,” says Nathan Millard, a British expatriate who was contracted by three separate government agencies last year to run overseas programs for entrepreneurs, including the two Singapore trips that VCNC joined.

He says the government’s crude bureaucratic metrics and lack of expertise with startups led to situations in which programs were rushed because budgeted money had to be spent by the end of the calendar year.

Mr. Millard, global director for Seoul-based tech startup platform BeSuccess, says his experiences gave him a close-up look at the potential shortcomings of such strong government involvement in promoting startups.

He adds, however, that he sees signs that feedback from organizers and entrepreneurs is being taken into consideration.

The government has laid out a 15-year plan that includes measures to support startups from infancy to maturity. The project’s roots can be found in the election of South Korean President Park Geun-hye, who entered office a year ago pledging to jump-start what she called the country’s “creative economy.” One of Ms. Park’s first acts was to create the Ministry of Science, ICT and Future Planning.

Lee Chung-won, director of the digital content division at the ministry’s software policy bureau, said late last year the organization’s main task is to overcome a deeply ingrained belief among the country’s brightest students that jobs with the government or conglomerates such as Samsung are the only good career paths.

“We have helped young people realize they can start something,” Mr. Lee said on the sidelines of a government-organized startup conference in Seoul. “One year is not long enough to give a fair assessment” of the plan, he added.

“All projects for startups … are monitored regularly and adjusted when policy environments are changed,” says Hong Song-wan, director of the ministry’s Creative Economy Promotion Division. Citing a review process, Mr. Hong says most “duplicate projects and budgets are screened and eliminated.”

Edward Lee of VCNC says his startup benefited from the government-sponsored programs in Singapore in part because the company is focused on growing in Southeast Asia.

The startup also came prepared, having already raised $4 million from venture-capital investors, including SoftBank

9984.TO +5.72% Ventures Korea, an arm of SoftBank Corp., the Japanese telecommunications and Internet company. Last year, VCNC received an additional $400,000 in government grants.

VCNC, whose Between app has been downloaded more than five million times, has used its extra government money to upgrade its servers and boost its marketing outside South Korea. “In that sense, we were one step ahead,” he says.

Mr. Lee adds that while the money has come as a help to his company, the government efforts still have room for improvement.

“It’s a lack of experience,” Mr. Lee said. “If there’s more planning and more know-how within the Korean government, in the long run it will be very helpful for the ecosystem.”

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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