At age 28, Jang Won-gwi left a cosy job at a South Korean technology firm to pursue his start-up dream. Together with two friends, he set up a company called Quicket to run a mobile used goods marketplace.
In the intervening four years, his app has become one of South Korea’s most popular mobile services, with about 5m people downloading it and 1m monthly active users. Quicket was recently sold to the country’s dominant portal Naver for millions of dollars.
“Working for a big company was not fun because I could not lead my own projects,” recalls Mr Jang.
Mr Jang is one of the growing circle of South Korean start-up founders as the government seeks to reduce the country’s heavy reliance on several big conglomerates.
President Park Geun-hye, who took office in February 2013, has made the so-called “creative economy” a central goal of her agenda, pumping billions of dollars of state funds into supporting start-ups and small and midsized companies.
Quicket received seed funding from Primer, a venture capital firm set up by several successful young entrepreneurs. Later, it also obtained funding from state-run organisations such as Korea Technology Finance Corp and the Small and Medium Business Administration.
“Funding is not easy but the environment has become much better recently, with all kinds of government programmes,” says Mr Jang.
The state funding schemes have made waves in South Korea’s technology community as young entrepreneurs try to build on previous successes by the country’s gaming and “chat app” creators, such as Nexon and Naver, capitalising on world-leading rates of internet speed and smartphone penetration.
“The smartphone era has provided new opportunities for promising young entrepreneurs, spurring a new wave of start-ups,” says Lee Taek-kyoung, head of Primer and cofounder of online portal Daum Communications, noting that the ecosystem for start-ups has considerably improved in terms of education and funding, compared with when he founded the portal in the 1990s.
Amount of venture capital investment in South Korea in first seven months of 2014
In addition to state funding, the first generation of young successful entrepreneurs who have made fortunes from their internet businesses in the 2000s are actively reinvesting their wealth in nurturing new start-ups. Primer, K Cube, and Bon Angels are among the most active venture capital firms created by such entrepreneurs.
The government’s largest financing mechanism, the Growth Ladder Fund, has over the past year spent Won259bn of its Won2.4tn in capital on equity stakes in 52 companies. South Korea hosted Won830bn of venture capital investment in the first seven months of this year, putting the industry on course for a record.
“Easier funding has prompted mid-career engineers from big companies like Samsung, LG and internet powerhouses such as Naver, Nexon, NC Soft and Kakao to set up their own ventures,” says Jimmy Rim, head of venture capital K Cube Ventures, set up by a billionaire founder of chat app Kakao.
“We have experience and knowhow from our venture experiences to guide promising young entrepreneurs so that they can minimise trials and errors,” says Mr Lee at Primer, which has invested an average Won50m each in about 27 companies so far including Quicket.
The improving start-up environment has fostered some globally competitive firms like Viki, a video-sharing website recently sold to Japan’s ecommerce operator Rakuten for $200m, and Olaworks, a facial recognition company sold to Intel for about $30m.
But the country still has a long way to go to match the risk-taking culture of Silicon Valley with many state-run funding organisations and banks still asking for collateral or debt guarantees from entrepreneurs. The country’s sluggish mergers and acquisitions market is also a concern for start-ups and venture capitalists as this makes it difficult for them to recoup investment.
Industry watchers say the government should now focus on ensuring fair competition and getting rid of unnecessary regulations as small firms still struggle to grow in the shadow of big businesses. “Big conglomerates try to change the rules of the game with massive capital when they see some promising ideas,” says Mr Jang. “The government should play a watchdog’s role more actively to prevent them from hurting the ecosystem.”