Startup leaders, I am glad to meet you all.
“A nation of startups that promotes innovation” – this phrase sums up one of my Administration’s top administrative priorities. We have been concentrating policy capabilities on revitalizing the country’s venture ecosystem. Today is my fifth meeting with startup leaders since the beginning of the year.
The strategy to be unveiled today to promote the second venture boom is the result of suggestions gathered from the business venture community.
What will be important in the era of the Fourth Industrial Revolution is convergence, speed, innovation and the spirit to take on challenges. Startups will determine industrial development and economic growth. The ability to create ventures and startups has become a key element of national competitiveness.
Countries around the world have already engaged in fierce competition to create innovative startups. Business ventures are shifting the global economic paradigm. New ventures have grown into large global businesses, and Apple and Amazon have now joined the ranks of America’s top 10 businesses.
Once a student of Korea’s venture ecosystem, China has fostered Baidu, Alibaba and Tencent as key businesses and along the way emerged as an innovative nation that nearly matches the United States. Even though none of our startups have yet to be listed among the top 10 Korean businesses, our potential is also staggering. Between 1997 and the early 2000s, we witnessed Korea’s record-setting rapid transformation into a venture powerhouse.
During that period, venture investments surpassed 2 trillion won while the number of startups exceeded 10,000. Young job seekers even preferred to land a job at a startup more than a conglomerate. The venture boom at that time catapulted the Republic of Korea into a global IT powerhouse.
Building on these experiences, my Administration has been preparing a new growth surge.
The Government has actively provided investment funds, including an innovative venture fund of 10 trillion won and the financing of a fund of funds through a large-scale supplementary budget. It has also overhauled regulations to empower the private sector to select qualified startups. In addition, angel investment is nearing the level recorded in the first venture boom on the back of a policy to expand tax deductions.
Thanks to improvements in the KOSDAQ and KONEX (Korea Next Exchange) markets as well as in regulations related to venture holding companies, the return on venture investments has reached a record high. The environment conducive to taking on the challenge of starting a new business has been drastically improved by reintroducing the tax exemption for gains from the exercise of stock options and completely abolishing joint and several liability systems in state-owned financial institutions that provide financial backing for policies. Immediately after its inauguration, the Government announced measures aimed at stimulating innovative startups and has upgraded relevant policies on 14 occasions thus far.
As a result of these endeavors, new investments in startups totaled a record 3.4 trillion won last year and the number of newly founded corporations exceeded 100,000, among them the greatest number of startups in history. In 2016, there were just two unicorn companies – unlisted startups valued at over US$1 billion – in Korea. That number increased to three in 2017 and six in 2018. Now, Korea ranks 6th in the world in the number of unicorn companies.
As of 2017, the number of business ventures with annual sales of more than 100 billion won rose to 572, and their combined sales reached 225 trillion won, placing them 2nd in terms of annual sales among local businesses. In addition, they employed a total of 760,000 workers, more than the five leading business groups combined. As such, our innovative startups are proving their potential in creating new growth engines and job opportunities.
Distinguished business leaders from innovative startups,
Despite our joint efforts thus far, there have been some limitations on domestic startups aiming to grow into global companies. Startups have faced difficulties when scaling up to grow into unicorn companies. Now my Administration is striving to take Korea beyond a nation of startups to one where startups can grow and leap. It aims to foster a second venture boom through which many domestic ventures can perform well in global markets.
The process of turning ideas into products and initiating a corresponding new industry requires research and effort over a long period of time. In the case of Velcro, widely known as jjikjjik-i in Korea, it took eight years to commercialize and 20 more to scale up production and develop a corresponding industry. It is never easy for individuals who have just started a business or companies to scale up on their own.
The Government will raise a large investment fund worth 12 trillion won over the next four years to exclusively help new startups scale up. The Government will also lay the foundation to facilitate the growth of startups into unicorn companies. It will endeavor to ensure that the total number of unicorn companies rises to 20 by 2020.
It is also important to revitalize the M&A market in order to help nurture business ventures and recoup investments. Global companies have already been innovating themselves through M&As. Amazon has acquired over 100 startups, and Intel is using M&As to expand the scope of its business from semiconductor manufacturing into self-driving vehicles and related markets.
The Government will create conditions that allow founders and investors to profit from M&As and reinvest their capital. Of the total investments in business ventures, only 2.5% were recouped through M&As in 2018. Efforts will be made to help raise this figure to over 10 percent by 2022. Funds that invest in M&As will continue to be expanded while incentives will also be put in place to help large companies actively nurture in-house ventures or spinoff businesses. Regulations governing venture holding companies will continue to be upgraded so that large companies can actively merge with or acquire startups.
The newer a startup is, the smaller it tends to be and the faster it must adapt to changing times. Thus, each and every professional is all the more valuable. The Government will create an environment in which research personnel can join startups without the burden of excessive risks, and regulatory sandboxes will be actively utilized so that the vitality of startups and business ventures can be regained.
Distinguished startup leaders,
We have a national character that demonstrates an innovative quality even in the face of a crisis, proudly overcoming the crisis and continuing to develop. The Government’s role is to create an environment in which people can fully exercise their potential for innovation and businesses can experiment with and commercialize innovations to the fullest.
Present here today are people who can represent the second venture boom: the first and second generations of entrepreneurs who led startups, those who started business ventures whose sales now exceed 100 billion won, founders of unicorn companies and startups, and future startup founders.
What I pledge here is that the Government will become a partner and sponsor to help all of you. It will provide full support so that you can sense the positive impacts all the more. I hope that you will take the initiative to inspire many more youths and innovators.
When you dazzle the world, many more innovative startup founders will follow in your footsteps, and the Republic of Korea’s economy will be able to take a new leap forward.