Home to over half of all South Koreans, Seoul is the capital and largest metropolis of South Korea. It is the part of the world’s second largest metropolitan area, and is home to over 10 million people.

Startup Hubs Around The World: Seoul

© Shutterstock.com | Sean Pavone

In our continuing investigation of startup hubs around the world, we will take a look at 1) the location, 2) the tax incentives, 3) legal incentives, 4) investors, 5) specialization of the area, 6) local resources, and 7) startups to watch in Seoul.

LOCATION

South Korea is part of East Asia and the only country in the world to share a land border with North Korea. The country is largely surrounded by water, with coastlines along three different seas. The country receives enough rain to sustain agriculture, with serious droughts occasionally occurring about once in 8 years. Most of the annual rain is expected between June and September. The country mostly escapes the wrath of serious typhoons, which are more likely to affect neighboring countries such as Japan, Taiwan, parts of China and the Philippines. These storm fronts do bring torrential rains with occasional flooding and landslides, causing considerable damage.

The capital, Seoul, is a historical city, founded in 18 BCE by Baekje as one of the three kingdoms of Korea. The city is situated on the Han River and contains many UNESCO world heritage sites. Mountains surround the city, the tallest being Mt. Bukhan. This is the world’s most visited national park per square foot. There are also many modern landmarks. As many as 12 million tourists and other foreigners visited the city in 2013. This large tourist footfall helped the city become the world’s 10th most visited and 6th largest earner in tourism.

Geographical Benefits

Seoul is divided in two by the Han River which has played a key role in the history of the area. The city is to the northwest of the country and the river was used as a trade route to China through the Yellow Sea. This route is not used in present times since the river opening to the sea is at the border of the two Koreas and is an area off limits to civilians.

The city has a surrounding wall of 8 mountains and some level lands of the Han River Plain. The climate is humid continental and subtropical transitional. The months from November to May are more continental while the rest of the year has a more subtropical climate with a tropical wet/dry situation. The East Asian monsoon takes place from June until September. August is the warmest month of the year, while winters can be freezing with some days of snow.

Advantages of Choosing Seoul

According to a 2014 Bloomberg Global Innovation Index, South Korea was at the top when compared to all other countries in indicators such as research and development capability, productivity, technology density and patent activity. This is not surprising as South Korea has grown to become an economically strong area with substantial spending in research and development helping it to become a leader in information and communication technology. In addition to manufacturing cutting edge electronics, the country is also an avid consumer of these digital products. A chunk of bandwidth (50mb/s on average) goes into online gaming and the country hosts the world’s largest video game competition. K-Pop music videos are another popular use of broadband and a global export. This has led to a younger crop of technology experts who are entering a startup scene rich in mobile game development and social media innovation. A more world-focused attitude has attracted the attention of global investors as well, with Google being a key example with their own startup community focused on South Korean companies.

Jess Erikson of 500 believes that the city is on the brink of becoming a hub within Asia for concentrated tech activity. She believes this to be possible within 3-5 years and she sees Seoul as a potential Silicon Valley. Her reasons behind this belief are:

  • Government Support
    • A supportive government is a vital component to success in most ecosystems to promote entrepreneurship. Per capita government backing is higher than any other country and it is expected that the government will put $3.7 billion into startups through initiatives and grants.
  • The Right Timing
    • The startup scene has taken off in Korea recently and the presence of top accelerators such as SparkLabs, KSTARTUP and FT Accelerator as well as investors and startup-focused communities are all indictors of a market on the rise. This has helped generate interest from international investors as well.
  • Shift in Thinking
    • There appears to be a shift in the way the new generation thinks, and instead of traditional jobs in high profile companies, more students are showing an interest in joining a startup or starting their own company.
  • Korea-Specific Opportunities
    • Korea boasts a technology infrastructure that is significantly advanced when compared to other developed countries. Smartphone usage is almost 80 percent with average internet speeds of 50mb/s. The population density in Seoul makes it easier for a mass adoption of new technology.
  • Mobile-Specific Opportunities
    • There is an almost 50 percent higher rate of smartphone adoption in South Korea than in the US and mobile commerce is also at a rate much higher than in America. With a growth rate of 156 percent year-over-year and mobile sales projected to hit $14 billion in 2014, the country presents a great opportunity for investors and entrepreneurs in the mobile business.

TAX INCENTIVES

Since the South Korean government is actively involved in the development of an entrepreneurial ecosystem, there have been several steps made over the years to support this agenda. In 2013, the government announced different measures to help encourage startup businesses and create new jobs to fuel future economic growth. Among these were also tax incentives. A key step was to change the startup financing structure from a loan-based one to an investment-centered one. This would be more supportive of the high-risk and high-reward nature of startups.

To help this along, tax breaks and incentives for angel investors and venture capitalists were to be introduced together with a change in tax policies to make it easier for these investors to disinvest and reinvest. Another feature is to give tax benefits to mergers and acquisitions within technology-driven businesses that involve research and development.

A new exchange KONEX was also to be set up in 2013 to help facilitate access to the capital market with the same system of taxation for investments as the main KOSDAQ stock exchange.

LEGAL INCENTIVES

Despite the growing startup scene in South Korea, there are some legal and regulatory issues to be addressed. According to the head of the Startup Alliance, Lim Jongwook, “The domestic startup ecosystem is active but limited due to regulation.” This means that there are regulations in place that are seen to be in the way of startups. An example is the strict aviation and radio wave regulations that prevent startups in the drone industry from reaching the same success as their Chinese and American counterparts.

South Korea has taken some steps to help things along, however. Among these is the startup visa option. In 2014, the country issued its first startup visa to encourage foreign entrepreneurs and startups. The visa was granted to a Korean-America IT entrepreneur, Jason Lee, who now runs two business in the country. There remain challenges, however, which need to be continuously addressed. Hiring a foreigner is a task fraught with uncertainty and a lack of a clearly defined process. The process is somewhat subjective, with constantly changing rules that can become frustrating.

A restrictive visa and hiring law means that small companies will not be able to expend resources to hire the right people for the early stage of their business. The E-7 visa requires the company to hire 5 locals for every foreign worker and there must be proof that the work cannot be done by a Korean. The D-8-4 Visa issued to Jason Lee is a solution, but there are restrictions applied to that as well, such as patent ownership, which may be impossible for most foreigners to acquire having no Korean background.

The Ministry of Trade, Industry and Energy announced many deregulation measures this year for foreign-invested firms which should further help matters along.

INVESTORS

There are several reasons for the increased interest from investors into the South Korean startup scene. After the Information and Communication Technology boom of the late 1990s there was an emergence of large ICT firms that saw success over the years. These founders as well as the growing group of Korean-Americans who returned to Korea with knowledge of the US investor scene helped fuel a startup boom.

This was helped along by the Korean government not only investing in the ecosystem, but also working towards making an enabling environment for entrepreneurs and investors both. The government has also encouraged large Korean companies to set funds aside to support startups. Strong ties with neighbors China and Japan help provide an initial testing ground or first export market to many startup accelerators.

SPECIALIZATION

As mentioned briefly in this article, the key strengths for South Korean startups are in the information and communication technology fields. The country boasts a large group of skilled developers and engineers who work on anything from gaming apps to social media innovation. One key specialization area for the country is mobile, with four in every 5 people owning and using smartphones, a rate 50 percent higher than the United States. In addition the bandwidth on average is 50mb/s compared to the 10mb/s in the United States again. This has led to a tech savvy country that is years ahead of other developed countries in technology-based infrastructure.

The proliferation of the internet and smartphones has led to a large percentage of online sales and mobile commerce which are steadily increasing. According to estimates for 2014, per capita mobile spending is $280 in Korea vs. $105 in the US and $45 in China. These statistics make the country a lucrative market for those investors and entrepreneurs with an interest in mobile opportunities.

Another area of interest is online gaming and social media. South Korea hosts the world’s largest gaming tournament and has three channels dedicated to the screening of such tournaments. The tech savvy new generation of entrepreneurs takes a lot of interest in this field and it is a great opportunity for investors.

LOCAL RESOURCES

With the increase in scope of startups, there has also been an increase in the number of startup hubs, accelerators and communities in the city of Seoul. Some of these include:

The Ventures

This company was started in 2014 by the creators of Viki, a community-driven distribution platform for TV content that was acquired by the Japanese firm Rakuten for $200 million. Changseong Ho and Jiwon Moon’s firm works with various startups for an indefinite period of time. These startups are provided with an office space, professional support and are mentored until such time as they are ready to enter the market.

FuturePlay

This company was also created in 2014 and is focused on early-stage tech startups. FurturePlay believes that the requirement for market understanding and a solid base is an acceleration period of three months. A combination of incubator, accelerator and venture capital, the company provides bright entrepreneurs a paid 12-month intensive program.

Digital Entertainment Ventures

This company began in New York in 2012 and has a primary interest in media, entertainment and platform businesses. The company ventured into Korea following immense support by the Korean government for the ecosystem. The company combines acceleration in both Korea and the US.

KStartup

This organization began as a pilot in 2012 and officially launched in 2013. It is now one of the largest acceleration/incubation programs in the country and is supported by Korean and American Corporations. The main focus is on early-stage startups and the goal is to create global companies. The program inducts founders for a period of three months. During this time, they are provided with support to develop ideas and are mentored by entrepreneurs, marketers, designers and investors based in the Silicon Valley.

SparkLabs

This organization offers a small investment, mentoring and workspace in exchange for an equity stake in the company. Started in 2012, the company runs the program for three months, twice a year. The company has taken out three batches, acquired two companies, graduated 30 companies and raised $75 million in follow-on funding.

Seoul Space

This is one of Korea’s top startup accelerators and was founded by David Lee and Richard Min. Lee and Min are two of Korea’s leading techies and have had a part to play in the move to make Seoul Korea’s Silicon Valley. If a startup is selected for the program, it becomes a resident company in the Seoul Space and is provided mentorship and expertise.

STARTUPS TO WATCH

  • Kakao Talk – This is one of the most successful Korean Startups and is worth $2 to $3 billion. More than just a messaging app, it is also a mobile-only platform and a portal to social gaming, ebooks and music streaming.
  • Coupang – This startup is worth $350 million and offers daily deals, flash sales and social ecommerce. It is operated by a US-based company called Forward Ventures. The company made it to the list of top 100 of the world’s most valuable privately-held tech companies. There is a slight downward trend among online deal websites in Korea so the company’s current value may be a bit lower.
  • Texat – This program helps users analyze text message conversations for underlying emotional patterns. Users are asked a few background questions and then upload a thread of messages. The program has analyzed 1.2 billion text messages including stickers and emoticons and the company is confident in its ability to predict these emotional patterns.
  • Vingle – This is a content sharing social network. It has 3,000 channels and is continuously growing. The startup already has 2.5 million unique visitors each month and 100 million monthly page views. Though the service is popular in Korea and the US, co-founder Ms. Moon aims to reach a Japanese audience.
  • Bapul – This is an education application. The program aims to bring in the geniuses of the world to educate others. The main focus is on math problems. When a student is stuck, they can share a photo of their work along with their approach to solving the problem. The correct answer and explanation is supposed to come back in 20 minutes.

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