Crowdfunding for startups is now legal in Korea

Korean crowdfunding platform Tumblbug recently raised $1.5M in series A investment

Crowdfunding is officially open for Korean startups. This week, Korea’s National Assembly passed a package of economic stimulus bills, including one that makes crowdfunding and crowdfunding websites legal in Korea.

Before this bill, Korean entrepreneurs couldn’t ask their compatriots for small investments in return for perks, the basis upon which crowdfunding exists. Their only options were to bootstrap using their own money, raise larger investments from the small-but-growing pool of VC money in Korea, or look at crowdfunding platforms abroad.

In recent years crowdfunding websites in the US have gained huge popularity, as a means to fund new projects, to conduct early stage marketing activities, and in part to gauge feedback for final product development. While the most successful campaigns are able to raise millions of dollars, even smaller campaigns such as those recently concluded by Korean startups ZIKTO and WayWearable, serve as a vital source of revenue to push projects one step closer to realization.

Crowdfunding, as we’ve seen it rise in the US, is at a relatively early stage in Korea, but the concept is not new. Korean sites like Tumblbug have been crowdfunding independent artists for some time. The platform has seen relative success generating revenue of about USD $40 million for their different artists.  As reported by Tech in Asia, their success has led to a USD $1.5 million series A investment earlier this year, led by Korean industry giants such as Naver, early stage investor Strong Ventures, and DCM.

Moving beyond creative projects

It remains to be seen if the change in legislation will lead Tumblbug to offer a service similar to Kickstarter and Indiegogo where any type of project can be funded. Given the difficulty Korean companies face trying to crowdfund on western platforms (language barriers, time zone differences, social media, etc.), there is a lot of incentive for Tumblbug –as well as anyone else– to step in as Korea’s all-inclusive crowdfunding platform.

According to the Korea Joongang Daily “The revised Financial Investment Services and Capital Markets Act – or the so-called crowdfunding act – is one of the most notable bills passed on Monday, aimed at supporting start-ups in order to boost the economy and create new jobs for young people.” The paper went on to explain that “The act allows startups to raise initial capital through an online brokerage site, giving individual investors, from the ‘crowd’, opportunities to support small companies.”

There are obvious challenges which Asian companies face attempting crowdfunding on western platforms, not least that backers often prefer the security of contributing to home-grown projects. The recent development in Korea is a legislative milestone for pioneering Korean startups considering crowdfunding. Beyond Korea, it may also provide startups in Asia with another avenue for attracting revenue to fuel project development, as well as for initial customer acquisition.