May 23, 2013 VI Astana Economic Forum Koreas Start-up Promotion Policy - Young Entrepreneurs Start-up Academy -

May 23, 2013

VI Astana Economic Forum

Korea’s Start-up Promotion Policy- Young Entrepreneurs Start-up Academy -

I Korea’s Economic Growth and Role of SMEs

II Importance of Youth Start-ups

III Korea’s Youth Start-up Promotion Policy

Young Entrepreneurs Start-up AcademyIV

Contents

- GNI(Gross National Income): (1953) $67 → (2012) $22,720

Korea has transformed from one of the poorest countries into one of the tenth largest economies in just about 50 years of economic development.

The economy has grown 300 times in 60 years since the establishment of Korean government.

’96 ($12,518)

’07($21,632)

Asian Eco-nomic Crisis

($7,607)

1st(`73) & 2nd(`79)

Oil Shocks

Olympic Games(1988)

5-Year Plan for Economic De-

velopment(1962~1981)Korean War

(1950~1953)

Financial Crisis

($17,041)

Rapid Growth → Economic Stability

(1970s~1980s)

Transition(1990s)

Mature Stage(2000s~)

Industrialization(1960s)

’48 ’55 ’65 ’75 ’85 ’95 ’05 ’12

Fiscal Crisis (2012)

($22,720)

Korea’s Economic Growth and Role of SMEs

Ⅰ.

Development of the Korean Econ-omy1

- 1/18 -

Gov. Establish-ment

(1948)

No. of Businesses No. of Employees Added Value

■ SMEs: (1980) 29,779 (96.6%)

→ (2010) 112,897 (99.5%)

* Large Companies: (1980) 1,044 (3.4%)

→ (2010) 618 (0.5%)

■ SMEs: (1980) 1,000,000 (49.6%)

→ (2010) 2,289,000 (77.1%)

* Large Companies: (1980) 1,015,000 (50.4%)

→ (2010) 679,000 (22.9%)

■ SMEs: (1980)KRW 4.2 trillion(35.2%)

→ (2010)KRW 215.7 trillion47.4%)

* Large Companies: (1980)KRW7.7 trillion(64.8%)

→ (2010) KRW 239 trillion(52.6%)

1963 1970 1980 1990 2000 2010

267 422

1,000

1,8641,962

2,289

135 439

1,015 1,156

690 679

(Unit : thousand)

1963 1970 1980 1990 2000 2010

18,073 23,406

29,779

67,679

97,379

112,897

237 708

1,044 1,193

731 618

SMEsLarge Companies

1963 1970 1980 1990 2000 2010

52.8%

28.5%35.2%

44.3%52.2% 47.4%

47.2%

71.5%64.8%

55.7%49.8% 52.6%

중소기업 대기업

Ⅰ. Korea’s Economic Growth and Role of SMEs

- 2/18 -

Growing Status of SMEs2

Source of Technologi-cal Innovation

- 3/18 -

Key to National Economic Growth

R&D budgets of SMEs have grown to a 18.6% of annual average since the year of 2005.

* Much higher compared with large companies (10.5%) and medium companies (9.6%)

Job Creation

SMEs created 320,000 new jobs in a decade (1999~2009) .

(Unit: thousands)

Growth Rate of R&D BudgetsNo. of Employees (with 5 or more employees) (Unit: KRW 100bn)

Added Value (with 5 or more employees)

Added value from SMEs has contin-ually increased in a decade (1999~2009), making bigger contri-butions than large companies.

* Added value contribution rate (2009) - SMEs: 50.5%, - Large Companies: 49.5%

Role of SMEs3

Ⅰ. Korea’s Economic Growth and Role of SMEs

`99 `09 `99 `09

678

648

1,830

2,150

4.5%↓

Large Compa-nies

Medium Companies SMEs

10.5% 9.6%

18.6%

1,038

1,945

971

1,98287.4%↑

104.1%

`99 `09 `99 `09

17.5%

(2005~2010 Annual Average)

Large Companies SMEs Large Companies SMEs

* Large companies saw a decrease of 30,000 jobs

The number of new businesses is on the rise in recent years, but youth start-ups have been slowing down.

Korea’s entrepreneurship index has been on a declining trend.

Youth joblessness, being twice higher than national unemployment, has become a social issue.

Importance of Youth Start-upsII .

Youth Unemployment

2.0

4.0

6.0

8.0

10.0

`09 `10 `11 `12.1 `12.6

- 4/18 -

Entrepreneurship IndexCEOs in their 20s and 30s

0

20

40

60

80

0

20

40

60

80

`03 `05 `07 `09 `11Sta

rt-u

p C

EO

s u

nd

er

30

s

(%)

(Source: SMBA)

(47.6%)

(18.3%)

(53)

(65)

- Young people afraid of failure and taking chances

`00 `09

`00 `09

`00 `09

(11th)

(16th) (19th)

(13th)

(6th)

(3th)

(Source: Donga Ilbo Entrepreneurship Center-Deloitte Consulting)

- Downward in innovative start-ups, but upward in self-employed for a living

Un

em

plo

ym

en

t ra

te (

%) (7.6

)

(8.1)

(3.6)

(4.2)

(Source: Statistics Ko-rea)

- Preference for government jobs and large companies

(7.7)

(3.2)

(8.5)

Increasing jobs and encouraging entrepreneurship through youth start-ups

No.

of

sta

rt-u

ps (

thou

san

ds)

Breakthrough in Current Economic Difficulties1

Unemployment(Total)

Unemployment(Youth)

No. of start-ups CEOs under 30s

- 5/18 -

< Employment/Start-up Ratio and Lifetime Income >

•Annual salary of college-grad-entry-level jobs: Large firms (KRW 3.5m), Medium firms (KRW 3m) Small firms (KRW 2.25m), Government firms (KRW 2.8m)

(Job creation)

II. Importance of Youth Start-ups

Driving force of Income and Job Generation2

Annual In-come

KRW 100m

30 35 40 45 50 55 60Age

Successful start-up businesses

Employment

Start-up

Employment = Start-up

Employment

Start-up

Retirement

Failure

Lay-Off

Failure

- 6/18 -

Nurturing innovative entrepreneurs by promoting youth start-ups

- Innovative young entrepreneurs: leaders of job creation and creative destruction

Inventor

Promoter

Entrepreneur

Manager

Creativity

High

Low

Managerial skills and networksLow High

A thrust of knowledge/creative economy (New Korean Government Policy) based on scientific and technological advancementCreative start-ups exploring the blue ocean

Advancing Challenger Entrepreneurship3

II. Importance of Youth Start-ups

- 7/18 -

III . Korea’s Youth Start-up Promotion Policy

Grants Loans Investments

TypeGrants for opening a

business and developing

technology

Loans for particular pol-

icy

(e.g. start-up promo-

tion)

Investments for expected

returns

Repayment responsibil-

ity

Low (none)High

(principal and interest)Medium

Period 1 ~ 2 years 3 ~ 10 years 5 ~ 10 years

Key com-ponents

- Young Entrepreneurs Start-up Academy- Business Incubation Col-lege- Start-up Tailored Program

- Young Entrepreneurs

Loan

- Venture Start-up Loan

- Small Merchant Loan

- Young Entrepreneurs In-

vestment

- Start-up Angel Investment

- Hybrid Financing

Policy Direction

Building infrastructure that harnesses any entrepreneurs with ambition and marketable tech-

nologyCreating an environment for advancing entrepreneurship and giving second chances

Programs

Policy Direction and Programs1

Realization of Start-up

(KRW 129bn )

- 8/18 -

Start-up

• 16 programs

• KRW 187bn

Start-up Training

(KRW 11.5bn)

• Teenager Biz School: from elementary to high school students

• Start-up School: prospective entrepreneurs and businesses less

than 1 year old

•Biz Incubation College: prospective entrepreneurs &

businesses less than 1 year old

•Young Entrepreneurs Start-up Academy: en-

trepreneurs under 39

•Start-up Tailored Program: prospective entrepreneurs and

businesses less than 1 year old

•Research Start-ups: scientist-turned entrepreneur(s)

•Leading Venture Start-ups: prospective entrepreneurs and

businesses less than 1 year old

•Global Youth Start-up : prospective entrepreneurs and

businesses less than 6years old• Start-up Capability Building Training: prospective entrepreneurs

over the age of 40

• Senior Biz Plaza: prospective entrepreneurs over the age of 40

Senior Start-up

(KRW 1.5bn)

• Start-up Infrastructure: members of business incubators

• Commercialization: one-person business

• App Factory: prospective entrepreneurs and businesses less than 1 yr

old

Others

(KRW 45bn)

Grants 2

Ⅲ. Korea’s Youth Start-up Promotion Policy

- 9/18 -

Major Start-up Grants(Realization of Start-up)

Purpose EligibilityTotal

Budget(2013)

Implement-ing authori-

ties

Business In-

cubation

College

Overview: 18 colleges providing entrepreneurs with pack-

aged

services for each preparation phase to start up a

business

Service: business launch; training; mentoring; office space,

etc.

* Grants: within 70% of individual project costs, up to KRW

50m

Prospective en-

trepreneurs ;

businesses less

than 1 year old

40.2 18 colleges

Young En-

trepreneurs

Start-up

Academy

Overview: a one-stop shop for entrepreneurs under the

age of 39

with high technology; and businesses less than 3

years old

Service: business launch; training and coaching; office

space;

equipment for product development, etc.

* Grants: within 70% of individual project costs, up to KRW

100m

Prospective en-

trepreneurs un-

der the age of

39; businesses

less than 3 years

old

25.4 SBC

Start-up Tai-

lored Pro-

gram

Overview: supporting product/technology commercializa-

tion via

colleges and other relevant organizations

Service: prototype production; marketing activities, etc.

* Grants: within 70% of individual project costs, up to KRW

50m

Prospective en-

trepreneurs;

businesses less

than 1 year old

50

Colleges

and private

institutions

(KRW billion)

Ⅲ. Korea’s Youth Start-up Promotion Policy

- 10/18 -

Loans for start-ups

(KRW 1.43 trillion)

• Venture Start-up (KRW 1.27 trillion): SMEs less than 5 years

old• Young Entrepreneurs (KRW 160bn): Entrepreneurs under the

age of 39;

SMEs less than 3 years old

PurposeEligibil-

ity

Inter-est rate

Total bud-get

Loan Limit

Venture Start-up Loan

Facilities, Equipment and working capital

Businesses less than 5 years old

3. 29% 1,270 KRW 3bn

Young

En-

treprene

urs

Loans

Flexible

repay-

ment

Working capital

(manufacturing, knowledge-based

services, and cultural contents indus-

tries)

En-trepreneurs under 39; businesses less than 3 years old

2. 70% 80 KRW 100m

Match-ing with private lenders

Working capital

(manufacturing, knowledge-based

services, and cultural contents indus-

tries)

En-trepreneurs under 39; businesses less than 3 years old

2. 70% 80 KRW 100m

Ⅲ. Korea’s Start-up Promotion Policy

Loans 3

(KRW billion)

- 11/18 -

Mechanism of Young En-trepreneurs Loan

Lending up to KRW 100m for start-ups

Failure in business

Bona Fide(Debt relief)

Moral hazard(Credit delinquents)

Success in business Regular repayment(5-year installment plan)

Start-up consultancy

Due diligence for debt relief

Debt-equity swap (if the business is most likely to turn around)

Up to 100% of the principal may be relieved.

Young Entrepreneurs Loan → Minimizing the fear of failure

Fixed annual interest rate of 2.7%

Repayment obligation (past-due interest)

Ⅲ. Korea’s Youth Start-up Promotion Policy

- 12/18 -

Fund Management Mecha-nism

Fund of funds

Public org./College/Research institutes

Angel In-vestment Matching

Fund

Start-ups

Angel in-

vestors

Angel In-vestment Support Center

Invest

Matching /Invest-ment & returns

Invest-ment and returns

Follow-up sup-

port

Ser-vices

Investments4

Ⅲ. Korea’s Youth Start-up Promotion Policy

Young Entrepreneurs Investment Fund(Korea Venture Investment Corp)

Fund Size : KRW 120bn

Eligibility: young entrepreneurs under 39

Investment up to KRW 0.5~1.5bn per business

Angel Investment Matching Fund (KVIC)

Fund size: KRW 350bn

Eligibility: prospective entrepreneurs,

businesses less than 3 years old

Investment up to KRW 300m per business

Hybrid Financing (SBC)Growth-sharing : KRW 40bn (CB purchase)

Profit-sharing : KRW 110bn

(Super-low interest rate loans under the condition of

sharing in a slice of operating performance)

- 13/18 -

Youth and high-tech start-ups have declined sharply despite steadfast increases in start-ups.

No. of start-up SMEs Venture CEOs in their 20s & 30s

No. of start-ups in high-tech manufacturing

Comprehensive package of finance, training, coaching, office space, product develop-ment equipment, and follow-up services (marketing and loans) is necessary to overcome uncertainties at the beginning of business start-up.

Promoting youth high-tech start-ups + Generating jobs for youth + Addressing aging SME CEOs

Young Entrepreneurs Start-up Academy opened in March, 2011.

Ⅳ . Young Entrepreneurs Start-up Academy

Background1

* Fear of failure decrease in youth start-ups aging CEOs of SMEs economic growth potential threatened

- 14/18 -

Loans(policy fund)

Providing loans to SMEs - Business start-ups (prospective start-ups, SMEs, venture businesses), new growth, commercialization of R&D results and business conversion loans - Emergency business stabilization, small merchants and hybrid financing

Developing HR for SMEs and promote start-ups by young entrepreneurs - Enhancing management skills of CEOs (CEO course) and capabilities of employees - Running the young entrepreneurs start-up academy

Marketing

HR(HR development)

Supporting early stages marketing and global cooperation - Bolstering local and overseas marketing of SMEs’ products: (domestic) HIT500, (overseas) trade delegations, etc. - Korea Desks(Malaysia, Indonesia), SME Support Center (Qingdao), Industrial Coordinators (U.S., Japan, Germany and Dubai)

Technology(consultancy, etc.)

Resolving problems through company diagnosis and mismatch of jobs for SMEs - Providing tailored support through company diagnosis (consulting, foreign employment support, etc.) - Addressing job mismatch by improving likability of SMEs to young job seekers (Smile Story)

SBC’s 33 years of expertise in SME support Zero in on young entrepreneurs start-ups

Ⅳ. Young Entrepreneurs Start-up Academy

- 15/18 -

Establishment

Research projects

Helping start-ups head off Death Valley

Success rate of R&D commercialization in Korea: 10-40% (past 2 years: 37.7%)

(UK: 70%, USA: 69.3%, Japan: 54.1%)

OvercomeDeathValley

< Young Entrepreneurs Start-up Academy >•Technology development & loans

•Specialized training & 1:1 coaching

• One-stop services for

Marketing & HR management •Government fund

-Loan: KRW 3.8trillion -Guarantee: KRW 57.2trillion

•Investment

•Private funds

•Government R&D (KRW 16 trillion)•Personal Investment

(KRW 30-100m)

Financing

Easy

Difficult

Development/prototype CommercializationBasic research

Role of Young EntrepreneursStart-up Academy2

Ⅳ. Young Entrepreneurs Start-up Academy

- 16/18 -

Budget

Eligibility

KRW 25.4bn for 2013 (KRW 20bn in 2012)

Ages under 39; CEOs whose startups are 3 yrs or less * Technology - intensive SMEs that strengthen job and value creation(manufacturing and knowledge services)

Support

System

Operation and Process3

Ⅳ. Young Entrepreneurs Start-up Academy

70% of the to-tal expenses up to KRW 100 mil

R&D Grants

Office, R&D rooms, etc.

Space

Entrepreneur-ship + practi-cal skills

24 Experts 1:1 coach-ing

Loans, invest-ment, market-ing, etc

LinksEduca-tion

Coach-ing

- 17/18 -

Korea’s an unparalleled one-stop (one-roof) start-up support package

for young entrepreneurs

- Providing comprehensive supporting tools to increase high-tech start-up and

improve the success rate

Focus on fostering qualified (future-oriented) young CEOs- Zooming in enhancing CEOs’ attitude and abilities as well as their success in new product development

A dropout system (two mid-term tests, bottom 10% of trainees departed)

- Guaranteeing the full independence to trainees but ruling out undevoted trainees by

interim evaluation

evaluations

Follow up Services- Continuing post-graduate supports Tracing business records in a span of 5 years after graduation

* Rewarding distinguished graduates with an additional loans up to KRW100 mil for one year

Boostin

g su

ccess ra

tes

Differentiated Features 4

Ⅳ. Young Entrepreneurs Start-up Academy

- 18/18 -

- Regional expansion: (’11) Ansan academy (’12) Gwangu, Kyeongsan, Changwon

Class 2011 Class 2012

Ansan center 188 167

Regional centers 24 46

Total 212 213

Major achievements for the past two years

No. of start-ups 212 213

Revenues KRW 47bn KRW 14.1bn

No. of new jobs 757 686

No. of new intellectual property rights 793 584

- All graduates have started up their businesses, posting strong revenues and creating new jobs.

Major Achievements5

Ⅳ. Young Entrepreneurs Start-up Academy

THANK YOU!