How the Korean government is investing in startups

Along the streets in Seoul, South Korea. Photo credit: HB Kang.

In dire need of new growth source and to reform job creation, since 2013, the Korean government has invested billions in funding startups and small businesses in grants, tax incentives, subsidized loans and much more.

As an entrepreneur who has founded two startups and currently working at ActnerLab, a venture capital firm and accelerator, I have firsthand experience of receiving and awarding government grants to startups.

Let me share my thoughts and experience regarding government funding.

Receiving government grants (as a startup)

The government grant in a nutshell is “Trickle Down” economics in action. With the creative economy initiative, the Korean government created a fund that “trickles” down to each layer of the government hierarchy. In the end, small amounts of these grants go to the startups that are selected in each program.

The most popular government grant program works like this. You have a budget for program duration (usually less than a year), you put in 30 percent (10 percent cash and 20 percent assets) and the government funds the rest (up to 70 percent). Here is an example:

~US$50,000 total budget (6 months)

• 70 percent – Funded by government grant (loan free, equity free cash)
• 10 percent – Cash investment by the startup (down payment)
• 20 percent – Asset (Founder’s sweat equity, meaning founder’s won’t have a salary)

With a total of ~US$50,000 budget, the startup can use this money to create a minimum viable product (MVP), launch products, buy equipments etc. However, every transaction needs to be backed with receipts, tax invoice and even photos (i.e. computer purchases).

The good: With these grants, startups can get a jumpstart creating their services and products. With a short program duration (often less a year), startups can test their idea out, pivot or fail fast.

The ugly: Unnecessary time spent on documentation. It actually takes quite bit of time to fill out the paperwork for every transaction. There are also several mandatory seminars, mentoring sessions, etc that must be attended by the founder, in which case can delay certain operations and decisions.

From my experience, after receiving a government grant (US$35,000) for my first startup, I was able to create a MVP and fund about 6 months of operations before we received private investment.

I did have to attend mandatory seminars that were prepared last minute and took several hours filling out documents for every transaction I made. I even had to take a picture of a stapler I bought to make sure the government money didn’t go somewhere else.

Awarding government grants as venture capital firms

Selecting the startups that will receive these grants is an entirely different process.

BONUS: Government matching funds

Conclusion