With every turn of the year, we ask ourselves what the new one will bring. As the year of Black Rabbit looms upon us, here are some very subjective predictions and insights on what will be happening on the Korean startup scene. 

Investments in the time of the winter

Not only in Korea, but around the world has everyone seen the investment markets get bearish. The third quarter of 2022 saw a staggering decrease in value of investments. And so numerous VCs have frozen their funds for the near future, their representatives are opting instead to buy a glass of something strong for the founders that are raising capital, to wipe away the tears of despair. That being said, as the recession and inflation look like a long-term thing, we all have to learn to live with it. It will force startups to become thriftfull with their spendings and better at managing their revenues (looking for different sales channels like social media), while looking for alternative methods of funding their technologies (mostly P2P). It will be a big test – with reduced support from private and public sectors, can the startups still be profitable and survive the crisis?

Also the VCs won’t be staying in their ‘frozen’ state forever. Around late spring they will resume investing in promising new innovations. After months of observing the recession market, they’ll be more careful where they place their capital. More and more VCs are setting up overseas offices, mainly in Singapore and the US, to also invest into foreign startups. Maybe this will give an urge to the Korea government to ease investments directly out of Korea. 

Spring and summer will also bring more activity from corporate VCs and bank institutions. Crisis or no crisis, investments will happen. The question is where that money will be placed. 

Hot industries

Despite the cold freeze, what industries will be on the pedestal, when it comes to Korea’s drive for innovation?

Among the usual suspects like semiconductors (especially related to electronic vehicles and AI), AI/robotics, mobility, health tech, web3.0 (and related blockchain/fintech subject matters), it looks to me like two industries/categories will take the spotlight and shine in 2023. 

[Eco/sustainability-focused startups]

I know, I know. ESG (Environment Sustainability Governance) is a phrase that has been used, overused and abused everywhere, also in Korea. Everybody jumped the SDG (sustainable development goals) bandwagon, when the Korean government announced its Green New Deal, but very few attempted (e.g. through programs like Impact Collective) to actually align their businesses with the 2030 goals set up by the UN agencies (why that is so is another blog post on its own). But finally after years of throwing around trendy words, there seems to be a steady number of startups coming up that are both sustainability and business-efficient. These cover a variety of domains – from mobility to green cement to smart farming like EGreen Global. Interestingly, quite a few of these startups, the mentioned EGreen included, are spinoffs from corporates or research institutions, usually meaning that their technology has been thoroughly researched and developed and that they have strong corporate/institutional support. 

In short, green is in, not just as a sexy slogan on your t-shirt.

[SaaS]

Korea has had a bit of a problem with Software-as-a-Service businesses. And it all boils down to product localization – Korean SaaS creations weren’t adaptable by overseas target consumers and global products struggled to achieve market success in Korea (meaning that Korean counterparts/counterfeits could dominate the domestic market). But the MZ generation opting for more consolidated products than what the local companies had to offer and successes of startups like Sendbird, have pushed local SaaS companies to be global and think global from day one. This has two consequences worth noting: first of all, this new wave of SaaS entrepreneurs is led by younger (in their 20s, 30s) founders with a more ‘worldly’ approach to doing business. Secondly, with enthusiastic support from the Ministry of SMEs & Startups, these companies are set to hire foreigners and build global teams from the start. Of  course, it won’t be all smooth sailing – jumping from hermit-kingdom to global startup hub won’t happen in a day, a month or even a year. But I do believe that this trend will steadily lead other industries to globalizing their operations. 

The government says…

Although its clench is slowly being released, the Korean startup scene still sings and dances to the tune the government plays. After an annual briefing with president Yoon, the Ministry of SMEs & Startups announced that the keywords for 2023 are ‘global, deeptech and cooperation’. Let’s look a little closer at what it really means.

#Global

Yes, for the past couple of years the Korean government institutions have been almost doing almost literal flip flops to push Korean startups to a)get international clientele b)get investments from overseas VCs (which for people like myself is the most frustrating KPI ever – why would foreign VCs invest in a startup that has no proven traction on a relevant market? I digress). So in that sense it’s nothing new. What’s new is two things: KRW8 trillion meta fund, a spin-off from the main meta-fund, to be operated by overseas VCs (and invested into Korean startups) and more proactive inbound programs for foreign startups. The forefront for the latter has been up until now the infamous K-Startup Grand Challenge, which has thus so far unsuccessful with only a marginal number of invited startups (out of 300+) having any sort of traction on the Korean market. The Ministry not only wants to improve on the KSGC (can they?) and similar acceleration programs but also run more OASIS startup visa programs, encouraging foreigners already present in Korea to step onto the entrepreneurial path. The Ministry doesn’t hide it’s intention: it’s to expose Korean entrepreneurs from early on to a ‘global’ network. I won’t comment on this, but I will point out that attracting foreign entrepreneurs takes more than spending tax money on more ‘acceleration’ programs. It should mean restructuring the government-infrastructure (where language barrier is the least of the problems) and supporting growth of startup communities and support networks, not government-run. Therefore, as much as this declaration from the Ministry should be good news for foreign-owned startups, I would not hold my breath for it’s actions.

#DeepTech

Again, it’s really nothing new – the Korean government wants Korean startups to be on the forefront of the technology innovation revolution. Similar to the ill-named ‘Baby Unicorn’ program, the Ministry plans to intensively foster 1,000 deeptech startups (ranging from digital tech to bio), over the next 5 years. Each of the companies is to be granted KRW1.5 billion, on top of additional investments for specific industries. 

On one hand, it’s a no-brainer that especially in fields like bio or healthcare startups need substantial capital support to develop and test their technologies. And in the time of investment freeze, such government support is more than welcome.

One the other hand, I’m afraid the government is again trying to be an overprotective parent, walking the startups through all the growth phases, not allowing for any imminent setbacks and *gasp* failures. Also, there is a lot of vagueness behind the category of ‘deeptech’ meaning it’s an invitation for zombie startups that will try to abuse the system. 

#Cooperation

Here the Ministry means cooperation between venture companies (more mature startups), platform enterprises and VCs to foster early-stage startups in their beginnings and growth. In short, it wants to put a stop to the big guys abusing and taking advantage of the little guys. Sure, this is great news – for example big delivery platforms have been really squeezing out the small business owners that use their platforms. But again, I do wonder how direct and loaded the government’s role should be in resolving this issue. Will it really make everyone drop their animosities, sit around the campfire and sing ‘Kumbaya’? Moreover, the Ministry’s beautiful declarations should be followed by concrete plans and actions – and these we have yet to see. 

2023 won’t be an easy year. And are they ever? A new set of challenges arises in front of the Korea  startups and if they want to survive and thrive, they will have to go back to basics, build a sound-proof business model, make sure they can prove their technology on the market and build a strong and resilient team that will overcome all the curveballs. I do know, it’s not as simple. But behind my criticism, I do have high hopes and expectations. Korea is renowned for overcoming crisis and worse, and it will do so this time too.