Change is the only constant
Reflections on the transformations surrounding Seoul’s startup ecosystem
Last week I wrote about the Wattpad-Naver deal because I was excited about collaboration between the Canadian and Korean tech communities. I got some great feedback from readers. Notably, there was interest from the Canadian side to learn more about what’s going on in Asia. While I’ve bounced around across the continent, my most recent in-depth experience was in Seoul, so thought I’d start there.
Coincidentally, a great primer on Seoul’s startup scene is Start-up, a Netflix production by Naver’s Studio Dragon. The show is about a young Korean woman with dreams of becoming an entrepreneur like Steve Jobs. Having spent 3 years working at a university-based incubator in Seoul, I was fascinated by how well it captures the experience of early-stage founders. Transformation is at the very heart of the story.
When I moved to Asia 6 years ago, I wanted to understand how societies transform. Driven by a curiosity to learn from the Asian Tigers and their models for economic success, I traded in my suburban Toronto comforts for an adventure around the eastern Pacific Rim. I sought to understand economic development trajectories and identify critical junctures that marked the shift from stagnation to rapid growth. A professor once asked, “What most commonly underlies the inflection point for countries from a state of inertia? Is it social, political or economic change?”
After my experience in Seoul I came to realize that the question was missing a critical option: technological change. Here are some insights from my experience on the transformational changes surrounding Seoul’s tech startup ecosystem.
The back story
From the poverty-ridden lows of the aftermath of war only a couple of generations ago to establishing itself amongst the world’s wealthiest nations, the Miracle on the Han River is the epitome of transformation. Korea is home to over 50 million people, and over half of them live in the Seoul Capital Area — making Seoul significantly more dense than buzzing Tokyo.
Startup Genome ranks Seoul as one of the top 20 startup ecosystems in the world. Its $39 billion valuation is impressive against Toronto’s $17 billion, even if dwarfed by Silicon Valley’s $677 billion. Yet, there is a dynamism in Seoul that is reminiscent of the Valley. Fueled by technical talent with strong execution skills, vast capital resources, and a ‘bali bali’ (hurry hurry) sense of time, the Seoul startup ecosystem is a force to be reckoned with.
Looking to government
Korean industry, known for its powerhouse capabilities in advanced manufacturing, is also becoming recognized for its creative enterprises. This emergence was hardly spontaneous.
The Korean government’s transformational industrial policies that once prioritized steel, shipbuilding and semiconductors, have now shifted to innovation policies with a focus on creative industries. They’ve figured out that the industrial is behind us and the creative is what’s ahead.
In 2013, the infamous Park administration set an agenda to foster industries that “integrate and align imagination and creativity with science and technology”. They called this the creative economy. Recognizing that value will increasingly derive from intangible assets, they realized that they could no longer just rely on industrial conglomerates, the chaebols, to drive growth. Instead, they doubled down on startups — high-growth, knowledge-based and technology-driven companies. From setting up coworking spaces to sophisticated financing schemes, the government injected billions to bolster a vibrant startup ecosystem to once again transform their industry structure.
Government plays a pronounced role in Korean culture. Koreans have come to expect governments to provide signals to direct their labour, and now, creative energy. Their strong sense of ‘we’ needs reassurance that wherever they might be going, they’re going together. Right now, the signal is loud and clear (seriously, watch Start-up on Netflix): the Seoul government is providing $1.7 billion through 2022 to position the city as one of the top 5 startup ecosystems in the world, and a breeding ground for unicorns.
Accessing risk-taking capital
Nonetheless, there is no doubt that the cumbersome bureaucracy of governments gets in the way of startups. While paperwork intensive public capital can be helpful for deep tech to get past the valley of death, startups across industries need access to risk-tolerant private capital to scale exponentially.
In the early days, the cash-rich chaebols were involved in both financing and liquidating entrepreneurs. Those founders then went on to start new companies or became angels for the next generation. While leading a cushy yet soul-crushing career in a chaebol is the norm, this otherwise risk-averse talent got some FOMO seeing their peers succeed in the startup scene. This, in combination with the Korean ‘bali bali’ sense of time, hyper-accelerated the transition between generational cycles that replenished the supply of talent and capital resources in the ecosystem.
As the startups grew more sophisticated, so did the investors that joined the party. According to Startup Alliance, 76 companies received investments of over $1 million in 2015. After just 4 years, the number rose by 360%. At the same time, ticket sizes grew bigger. This resulted in VC funding more than doubling from $1.4 billion to $3 billion over the same period. The real hype though is that the funding is not limited to domestic angels, accelerators, and venture capitalists, it’s also coming from their counterparts from around the world. The Korean startup ecosystem has transformed from being the guinea pig for chaebols to a truly global force to be reckoned with.
Unlike Canadian startups notorious for seeking funding south of the border, Korean startups have been able to achieve unicorn status while playing in their own backyard. Korea lays claim to 12 unicorns out of approximately 500 globally — that’s three times the number of Canadian ones. The first two Korean unicorns, Coupang and Yellow Mobile, joined that list in 2014. Since then, the speed of Korean firms hitting the sky-high billion-dollar valuation has accelerated. In 2019 alone, Korea had 5 startups join the unicorn club, and only lost one when German Delivery Hero scooped up Baedal Minjok for $4 billion.
Playing with unicorns
Koreans have understood that keeping unicorns at home is more than just a status symbol. It’s a critical ingredient for inspiring new founders and creating communities of learning of people who share a cultural context. Success seems more possible when you see people like you not just playing the game but nailing it. On the flip side, the people who do succeed are also that much more inclined to help when they see themselves in the next generation.
Founders need access to a diversity of stories to draw lessons from so they can find the ones that are best grounded in their specific context and work best for their unique situation. That’s why the numbers matter, and having a small handful of unicorns isn’t enough. Keeping unicorns at home also allows more productive mentor-mentee relationships because being in the room matters. Even though information, capital and access to markets are increasingly digital, communities of founders are still rooted in time and space.
Allow me to entertain an analogy inspired by my curiosity to learn from the success of the Asian Tigers. Like startups, we think of countries as being somewhere on the continuum of different stages of development. Development economists have theorized at length about the middle income trap, a phenomenon where countries get stuck after reaching a certain level of income per capita. It is considered to be largely a result of countries trying to compete on comparative advantage, rather than solidifying their competitive advantage. The latter requires a real vision, deliberate strategy and persistent execution of tactics. This is exactly the story of the Miracle on the Han River. Korea is a great example of a country that overcame the middle income trap and broke through to being ranked the 10th largest economy in the world. It has a playbook for success.
In many ways Korea is itself a unicorn which others can learn from as they try to overcome the middle income trap. One such aspiring contender is Vietnam. Korea and Vietnam share a familiar cultural heritage against the similar backdrop of war, colonization, and rapid industrialization. Vietnam’s tenacity for growth is reminiscent of Korea’s story of transformation. Vietnam has a diversity of examples to look at including the many success stories of the West. With Korea, it has found one that works best for its unique situation and also happens to be in the same metaphorical room of Asia. Vietnam’s receptivity to Korean tourists, consumer goods, and media entertainment is more than a market trend. These tangible links are signs of their deepening relationship. On the flip side, Vietnam has become the largest recipient of Korean development assistance and foreign direct investment. The cyclical nature of transformational change is grounded on newcomers learning from the pioneers.
A final food for thought. A couple of years ago, as I roamed the streets of Hanoi with my Korean students, observing their interactions with the Vietnamese, I realized something truly fascinating. The Vietnamese not only wanted to get to know the Koreans, they wanted to be like them.
With its forward-looking government policies, access to large sums of risk-tolerant private capital, and success in nurturing unicorns, the Seoul startup ecosystem effectively embraces transformational change. Whether we see shifts in the internet era as part of the fourth industrial revolution or movements towards the singularity, the pandemic has only helped us become more aware of what we already knew: every facet of our modern lives is rapidly transforming. Can we keep up? Based on my experience in Seoul, I’m convinced that Koreans have an astute understanding of these implications. They aren’t meekly grappling with change and fearing the subsequent uncertainty. Instead, they are embracing the fact that change is the only constant.