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Fighting off fears of failure, Korea takes new steps to foster startups

In the 1960s, South Korea’s GDP was on par with that of most African countries. Forty years later it was a trillion dollar economy, one of only 15 in the world.

The Asian country that's also considered Taiwan’s peer as an exporter and a hotbed for high tech now faces a new challenge: fostering startups to keep the economy growing.

South Korea initially became an economic power due in part to the establishment of universities and the government’s promotion of innovation and research. The GDP is now US$1.38 trillion after topping the trillion-dollar mark in 2004.

Now Korean leaders are trying to stay competitive by nurturing startups through government financial support. That support goes specifically to promising early-stage startups, universities that teach entrepreneurs critical skills and entrepreneurs who can mentor the startups.

HOW ONE UNIVERSITY HELPS

The government established the Korea Advanced Institute of Science and Technology (KAIST), the first university in South Korea, in 1971 to support economic growth. It has played a role in the economic growth of Korea over the past 40 years.

That university has a new mission today. Since 2012, South Korea’s GDP has experienced slow growth. So KAIST has set out to nurture tech startups and establish a vibrant startup ecosystem.

An increase in startups would in turn offset historic economic dependence on chaebols, which are family-owned conglomerates such as Samsung, LG, and Hyundai.

In 2014, the university established its Institute for Startup KAIST to address the slow economic growth and dependence on a few corporations. Each year the institute selects 25 projects for commercialization and gives them a combined $3.5 million.

The goal is that in a year or two, each startup will be able to get venture capital or technology licensing. To further support early-stage startups, the institute launched a pre-accelerator called AXEL-K in June.

And from September the university will offer a Masters of Innovation and Entrepreneurship. Courses include entrepreneurial leadership, entrepreneurial marketing, and “toolbox for entrepreneurs.”

All courses are designed to help entrepreneurs learn the skills to run a company, including how to obtain patents and how to pitch to venture capitalists.

WARNING FROM A PROFESSOR

Steve Anh is a face behind the university. The professor is a former entrepreneur and a current venture partner at Walden International.

Anh sees a trend of risk aversion, which runs counter to a startup culture. Failure, he fears, is seen as an embarrassment. Startups are considered high-risk, sub-optimal career paths. Parents tend to prefer their children land stable jobs at major firms such as Samsung.

Anh adds that South Korean society is hierarchical and homogenous, also traits that buck a startup culture that values creativity and pushing the boundaries. “Koreans act and think similarly,” he said.

Anh received an undergraduate degree in metallurgical engineering from Seoul National University, a master’s degree in electrical engineering and a Ph.D. in materials science and engineering, both from Stanford University. He previously worked at Sharp and Samsung.

In 2000 Anh founded and became CEO of Leadis Technology, a fabless semiconductor company headquartered in the Silicon Valley of California.

The government is trying to change the attitudes that Anh notes and encourage Koreans to pursue entrepreneurship.

PRESIDENTIAL EDICT

President Geun-hye Park has said she wants to foster a “creative economy” by promoting startups.

In that spirit, her administration initiated the Tech Incubation and Accelerator Program for Startups, or TIPS for short. If a government-designated incubator invests in a startup, TIPS will help match the amount. For example, if an incubator invests US$100,000 in a startup, the government will invest up to five times that amount in research and development and four times the original investment to market that company. Currently 21 incubators and 150 startups have joined the program.

Startup activity in Korea takes place mainly in the capital Seoul, particularly in its Teheran Valley district because it offers numerous co-working spaces.

Fervent startup activity also goes on in a spot known a TIPS town, where the government has allocated building space for startups. And on the outskirts of Seoul is Pangyo Techno Valley, where more established startups are located.

TIPS and the university programs headline government efforts to boost the startup climate in Korea. A measure of success is the boom in Korean pop music and Korean movies, both spawning a cultural wave that has rippled into numerous other countries.

Also helping boost startups in Korea, the first generation of entrepreneurs is becoming angel investors and mentors for the next generation. Names include Jae-Beom Lee, co-CEO of the mobile messaging service KakaoTalk.

Venture capital investment in Korea in 2014 exceeded 1.4 trillion won (US$1.27 billion), almost a 15 percent increase from 2013 and the third highest amount of startup funding in Asia. The government budget for funding startups grew from 1.81 trillion won in 2011 to around 2.17 trillion won in 2014.

As a testament to these efforts, joining the ranks of the more traditional Korean technology heavyweights are newer technology companies such as Daum Kakao, a mobile messaging app that made an IPO in October 2014 and now has a US$5.5 billion market capitalization. Then there’s Viki, a video-sharing website that was sold for $200 million to Japanese e-commerce firm Rakuten.

MODEL FOR SUCCESS: YONGKEUN PARK

Yongkeun Park is an associate professor at KAIST. He initially applied to the institute for funding to start a company based on advanced photolithography. However, after talking to Anh and other experienced entrepreneurs, he decided instead to commercialize technology for a 3D halographic microscope.

After one year, Park thought to start his own company but was afraid of failure. Anh and others encouraged him to hire somebody with experience to be his CEO and to secure initial funding. Tomocube, as the startup would later be named, landed seed funding from TIPS and the accelerator Bluepoint Partners.

Tomocube’s technology allows for the 3D visualization of living cells without staining and has drawn attention from the medical community. This year, its first, Tomocube is projected to earn US$7 million in revenue.

Galvanized by the success of his first startup, Park has started another company, Wave Talk, based on additional technology from his lab. The university again supported the research, and an outside CEO is working as an advisor. “Wave Talk” recently entered AXEL-K, the pre-accelerator program.

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