The number of technology-powered startups plummeted by more than 10 percent in the first quarter of 2024. This is a continuation of a decline in the foundation of technology-powered startups that started in 2022. The Korean government hit a snag in attaining its goal of fostering promising startups in the new industry and deep tech sectors.
The number of startups in technology-based industries such as manufacturing and knowledge-based services fell 10.4 percent to 18,992 from the same period of last year, according to the Korea Small Business Institute (KOSBI) on May 30. The total number of tech startups in the first quarter stood at 55,820, down 10.3 percent from 62,299 in the same period a year earlier.
The decline in the number of tech startups began in 2022. In 2022, there were 294,416, down 4.2 percent from 2021, followed by another 3.4 percent decline to 214,036 in 2023. The first quarter of this year saw an even bigger drop.
Experts blamed high interest rates and a slowdown in investment for the decline. The total number of startups in the first quarter of 2024 was also dropped 8.1 percent year on year to 306,200. There are calls for improving startup support policies for each life cycle in line with changed demographic and economic environments.
One good example is a pre-startup package that provides up to 100 million won in commercialization funds, business model (BM) development, and prototype production to prospective technology startup founders with good ideas. This year, 930 prospective founders were selected. The number of applicants decreased by 18.5 percent from 1,142 in 2023. The Early Startup Package, which helps companies grow within three years of starting up, has seen a decrease of about 300 applicants in three years. In-house venture incubation programs at Korean companies were reduced by 15 percent over the same period.
In the face of the weakening of the startup base, the Ministry of SMEs and Startups has set a goal to increase the number of private-sector-led tech startups selected for the TIPS program to 1,000. TIPS is a program that provides up to 500 million won in R&D expenses for two years and commercialization and marketing funds to startups under seven years old that have received investment from private operators. The number of new companies selected this year was significantly increased in order to gradually expand the scale of support. Approximately 500 previously selected companies were about to see their R&D funds almost cut by 20 percent this year.
“The aftermath of an R&D budget cut earlier this year has affected the stability of Korea’s entrepreneurial ecosystem,” several startup officials said.
Early-stage startups are also losing ground in government startup R&D support programs. The Stepping Stone Project for Startups, an R&D support program for early-stage companies that provides up to 120 million won in technology development costs for one year for a startup, abolished a restriction on reverse support for high-level performers this year. As a result, over 1,000 super-excellent startups have been selected for the Stepping Stone Project in 10 fields such as system semiconductors, artificial intelligence (AI), and future cars. Each of them will be able to receive 1.1 billion won in support funds for three years.
