Tel Aviv, Seattle… Seoul?

South Korea’s capital — perhaps better known for corporate behemoths such as Samsung and Hyundai – is increasingly brought up in conversations about the world’s most promising startup hubs.

And perhaps it should. Quietly but surely, the bustling East Asian metropolis of 11 million people has built one of the world’s most dynamic startup ecosystems. According to Startup Genome’s authoritative 2020 Global Startup Ecosystem Report, the city placed 20th overall with an ecosystem valued at US$39 billion – nearly quadrupling the global average – and early stage funding of US$1 billion. Startupblink ranked the city 21st overall in 2020, up a staggering nine spots from the previous year.

And Seoul might only be getting started – the city aims to become one of the world’s top five startup hubs, and it’s backing that ambition with over US$ 1.7 billion through 2022.

Seoul has clearly become venture capital paydirt. But why?

Seoul: where unicorns are born

If there’s a sign that your startup ecosystem has arrived, it’s unicorn production.

As of November 2020, South Korea had no fewer than 12 active unicorns, good enough for sixth worldwide and nearly double that of widely acknowledged tech giant Israel.

The latest company to join the list was ride-sharing company Socar, which achieved unicorn status in October on the back of US$ 52.2 million from local private equity funds SG Private Equity and Songhyun Investment.

Socar is the first South Korean mobility startup to go unicorn. Previous South Korean companies to achieve unicorn status include e-commerce giant Coupang, the so-called Amazon of South Korea that is valued at US$ 9 billion; fintech pioneer Viva Republic, the developer of popular P2P mobile payment service Toss; and biotech firm Aprogen, developer of biosimilar products.

Indeed, when you take into consideration former unicorns that have since exited through IPOs or M&A, South Korea has produced an impressive 20 unicorns, a number that compares favorably with any country not named the United States or Chia. The best known ex-unicorn is Woowa Brothers, the operators of South Korea’s largest food delivery service Baemin, which was acquired by Berlin-based company Delivery Hero in a blockbuster US$4 billion deal last year.

The Baemin acquisition was a wakeup call to investors, entrepreneurs and journalists worldwide that one ignored Seoul at their own peril. At TechCrunch, Danny Crichton wrote at the time:

While the country remains dominated by its chaebol tech conglomerates — none more important than Samsung — it’s the country’s startup and culture industries that are driving dynamism in this economy. And with money flooding out of the country’s pension funds into the startup world (both locally and internationally), even more opportunities await entrepreneurs willing to slough off traditional big corporate career paths and take the startup route.”

The Second Venture Boom: letting the money roam free

Driving the rise in unicorn startups – and the growing dynamism of Seoul’s startup scene, more generally – is a much improved financial scene that no longer punishes risk-takers. Describing the bad old days, Andy Salmon writes at the Asia Times:

Banks customarily lent to giant businesses with plentiful collateral; entrepreneurs who lacked such major assets were forced to take on perilous liabilities, and early-generation Korean venture capital firms were not much better.”

But no longer. Startups now have access to money, both from local VCs and international investors – the latter playing an especially key role in unicorn creation. Even South Korea’s traditional corporate giants such as Samsung have gotten into the act, creating internal incubators to nurture and support promising startups.

Last year, new venture investment in South Korea hit record numbers, posting US$2.3 billion in the first three quarters alone. And those numbers may soon spike even higher on the back of recent regulatory changes that allow major corporations to establish venture capital funds, freeing them to invest in startups directly.

Government takes an active role

In addition to regulatory changes, the government is aggressively cultivating Seoul’s startup scene as well. Startup Genome CEO CEO Jean-Francois Gauthier told TNW earlier this year:

The national government has multiplied policies to help it grow. Everyone knows that’s important but no one acts as boldly as the national government and the Seoul Metropolitan Government to grow startups right now. The mayor recently announced a massive investment to become top five in the world — a very ambitious goal.”

For starters, Seoul Metropolitan Government has launched a KRW 1.9 trillion (about USD 1.6 billion) initiative to become one of the world’s top five startup cities.The city is actively helping local startups not only overcome the COVID-19 pandemic, but to use it as an opportunity to prosper.

For example, the city is providing US$ 54 million in support this year to promising startups, including support for labor costs of “10,000 technological professionals” of promising startups.

At the national level, the country has earmarked US$ 62 billion for a “Digital New Deal” that will revolutionize the information landscape, while programs such as the Tech Incubator Program for Start-ups (TIPS) make South Korea a rising startup hub according to the World Economic Forum:

South Korea’s economy is primarily driven by large conglomerates like Samsung and LG, called chaebols, which have acknowledged the importance of start-ups as a driver of their continued economic success. TIPS (Tech Incubator Program for Start-ups), a state-led incubation programme, discovers and nurtures promising start-ups by selectively matching them with government funding. As the government takes no equity and provides these funds without any strings attached, start-ups can aim high without having to worry about potential failure – and this has been a game changer, especially when considering the risk averseness of South Korean society.”

Meanwhile, South Korea’s highly successful high-tech response to the COVID-19 pandemic is winning global praise. South Korea’s government is pledging to nurture the startup sector as a leader of the country’s post-coronavirus society, and US startups are now looking to South Korea as the country wins its war on COVID.

To be sure, South Korea’s big conglomerates will continue to play an outsized role in the country’s economy. But in Seoul, they no longer will be the only game in town.

Original article posted here at e27.