How the Choi Soon-sil political scandal is making things difficult for Korean startups

Charges of mismanaged funds and foul play have shaken up both the government and business sectors of South Korea. Choi Soon-sil, a long-time friend and “advisor” of President Park Geun-hye, has been accused of dubious dealings, interference in state affairs, and the extortion of nearly $69 million from large corporations into privately-run foundations she controlled.

The biggest losers of this scandal? Vulnerable startups.

Ramifications for the Culture Creation and Convergence Belt

Also known as “cel,” this government-run startup think tank and incubation center was launched just last December. Implemented by President Park Geun-hye, it signaled a positive step in South Korea for new small business creation. It was implemented by President Park’s administration and gave struggling startups a ray of hope for success. The program offers perks like overseas investment opportunities via cultural fairs and rent-free office space. The program is similar to that of Obama’s JOBS Act, which was signed into law back in 2012.

With the allegations now surrounding Choi Soon, the future looks precarious for the 93 new startups that entered the program since it kicked off last year. These vulnerable new businesses are expecting government support and help to move their product from concept to the important commercialization phase in the global marketplace — not an easy task. Choi’s interference in government affairs threatens to bring the entire project to a complete halt.

Choi soon-sil’s actions is having ripple effects. Photo credit: KBS View/CC BY 3.0.

Known to sometimes edit President Park’s speeches (though she has no official government post or security clearance), Choi was tied to government documents concerning cel through notations in her own handwriting. This has been extremely alarming to the startups that have already taken up residence in the building set up by the Ministry of Culture, Sports, and Tourism in the center of Seoul.

Rather than being proud of having been chosen to enter the incubation center, the members of these startups have begun to question their own involvement and the legality of company selection. What should have been non-biased decisions for hopeful participants now looks as if cel was conceived and executed under another close colleague of Choi’s — Cha Eun-taek — who, up until recently, had directed many of the cultural project’s important programs.

Left in the dark, the startups had no inkling of preferential treatment or foul play, only learning of Cha and Choi’s involvement after the information was released to the press. They will now have to pay the price for the underhand dealings and mismanagement: politicians are considering cutting funding to all projects tied to the two individuals.

Startups will now have to pay the price for the underhand dealings and mismanagement.

What does the future hold?

At this point, it’s evident Choi has fallen out of favor both politically and among the public. With her connections to her father’s shady religious cult, very few believe that she’s innocent. Opposing parties in the government, like the Minjoo Party, have pledged that they will invest no more of the 90.4 billion won ($80 million USD) the government budgeted for cel this year and, if necessary, also the following year’s budget of 127.8 billion won.

There are rumors that the startups may even lose their valuable office space in the near future, though they have done nothing illegal or wrong and have already had to deflect the “guilt by association” handed to them by the public. It’s a major blow to new businesses who want to maintain their ethical standards and integrity.

This also spells trouble for foreign investor interest. Before the scandal, the government-supported startups were more attractive for outside investment because of their monetary guarantee and support. Now, that image is tarnished and may not be repairable.

Before the scandal, the government-supported startups were more attractive for outside investment because of their monetary guarantee and support.

Ordinarily, being part of a state-run venture cluster with an incubation period and support to move your product to commercialization is a highly coveted and sought-after position for new businesses, mainly for the purpose of bringing in both local and foreign investment. The cel project’s scandal threatens to undermine this benefit, and the innocent bystanders will be on the losing end by default.