Asia is fast becoming the world’s leading financial hub.
For German startups hoping to take advantage of that economic growth, one key Asian market to consider is South Korea. As the fourth largest economy in Asia, South Korea – officially known as the Republic of Korea – is a powerhouse of growth and innovation.
For six years, South Korea has been the number one globally ranked country in Bloomberg’s innovation index, and Korea’s high-tech R&D makes it one of the most digitally connected countries in the world. Among other sectors, South Korea aims to make smart manufacturing an important growth center of its economy with plans to develop 30,000 smart factories this year alone.
In early 2022, the South Korean Ministry of SMEs and Startups announced their development plans along three key themes:
- Overcoming the crises faced by small business owners and startups
- Strengthening the competitiveness of SMEs
- Fostering innovation among venture funds and startups within the wider ecosystem
The Ministry has a four-point plan to make these themes a reality for startups in South Korea. Let’s take a closer look at each one.
1. Startup Financing & Venture Support
First, the Ministry of SMEs and Startups has decided to extend the duration of their support for venture firms within innovation industries from seven years to a full decade. More than 40% of the Ministry budget will be allocated for the commercialization of startups within those industries.
In 2022, the Ministry invested an additional 1 trillion KRW (US$810 million) into the Korea Fund of Funds for a venture capital fund worth a grand total of more than 2 trillion KRW (US$1.6 billion). In addition, the Ministry has set up a Mergers & Acquisitions (M&A) fund of 2.3 trillion KRW (US$1.86 billion) and an interim recovery fund worth 100 billion KRW (US$81 million). Finally, they’ve also helped ease investment restrictions for listed corporations when it comes to M&As.
Bottom line: the Korean economy is primed to invest in innovative startups.
2. Support for Biotech & Green Technology
German startups considering the Korean market will find it especially friendly to biotech and greentech companies.
In 2021, the Ministry of SMEs and Startups established the K-Bio Lab Hub. This industrial complex is supported by different local medical institutions in order to support biotech startups conducting experiments, research and clinical trials. The K-Bio Lab Hub also reinforces the Creative Economy Innovation Centers’ role in supporting and promoting regional startups. Construction on the complex will finish in 2024 at the expense of 335 billion KRW (US$271 million).
The South Korean government has also announced plans to systematically support the development and spread of green technology (greentech) to combat global warming. Startups can focus on a wide range of solutions, including carbon emission reduction, energy efficiency improvements, and transition technologies for high-carbon industries.
In 2022, the Ministry of SMEs and Startups and the Ministry of Environment announced a joint project known as “Green New Deal 100 Promising Companies.” This fund – worth 90.1 billion KRW (US$73 million) – is intended to support small- and medium-sized enterprises that focus on green technology, especially for tackling climate change.
Initiatives like the K-Bio Lab Hub and Green New Deal make biotech and greentech hot industries in South Korea that are ripe for investment – and returns – in 2022 and beyond.
3. Startup Support in Education & Young Talent
As part of its comprehensive startup strategy, the Ministry of SMEs and Startups is also focused on the next generation of entrepreneurs in Korea. Cultivating this entrepreneurial spirit prepares young people to contribute to a future startup – whether domestic or foreign.
To start, the Ministry wants to make the undergraduate degree system even more startup-friendly. The Ministry has designated six universities to be entrepreneurship-focused institutions. These universities already have excellent startup support infrastructure that aligns with the perspectives of university students.
Likewise, the Ministry’s TIPS (Tech Incubator Program for Startups) program will help further develop young entrepreneurial talent in South Korea. And to support the startups of TIPS entrepreneurs, the Ministry has created a 1 trillion KRW (US$810 million) youth fund.
As a result of all of these policies, German startups will find a bounty of young entrepreneurial talent in South Korea in addition to a host of local startup-friendly partners.
4. Legal & Structural Support for Startups
Lastly, the Korean Ministry of SMEs and Startups will be offering new legal and structural supports for startups. The Venture Startup Academy (with an initial class of 1200 students) will foster business talent and support long-term employment, in addition to stock option activation.
In 2022, the Ministry is introducing multiple voting rights and a multi-loan financial system for startup governance. This includes both a conditional investment loan system and conditional equity conversion contract structures. These legal supports were popularized by Silicon Valley in the U.S., and now the startup ecosystem in Korea will benefit from a similar infrastructure.
Conclusion
South Korea is a solid option for German startups. With consistent support from government ministries, the Korean market has everything a young startup needs to succeed: financing, industry-specific programs, a strong talent market, and legal infrastructure to encourage innovation.
Whether you’re searching for a place to expand your business, to launch a new product, to connect with a local partner or to invest in a new venture, South Korea is a country you can’t overlook.
Want to learn more about the potential of the South Korean market? Check out the South Korea Market Discovery program offered by German Accelerator.
