After its establishment in 2022, a domestic travel startup that received angel investment recently revised its management strategy. While the goal had been to expand services and increase market share, it has now decided to focus on creating a revenue structure. Otherwise, attracting investment for company growth in the current venture capital market, where the funding stream has dried up, is difficult.
The company's representative, Mr. A, noted, "Surviving in the market comes first rather than future growth," adding, "We need to generate profits in order to attract investment and ensure the company's sustainable growth."
In the cold spell of venture capital investment, the growth strategies of startups are changing. About three years ago, during the boom in venture capital investment, companies focused on increasing their size through sales, regardless of profits, while concentrating on future growth. Now, as attracting investment has become challenging, the focus has shifted to 'performance-based growth' that generates immediate profits.
◇"Immediate profits over future growth"
For startups, attracting investment is the key to implementing and expanding the company's technologies and services. However, raising about 1 billion won in Series A funding after receiving angel and seed investments has become as difficult as "picking stars from the sky."
A startup representative stated, "If we cannot create a structure that generates profits—not to mention sales growth—we cannot receive investments."
This change among domestic startups is more pronounced in large-scale startups that have been recognized for their growth potential. Kurly, which has grown through its fresh produce early morning delivery service, achieved its first profit in the first quarter of this year, ten years after its founding in 2015. The company recorded an operating profit of 1.8 billion won in the first quarter this year while enhancing its paid membership program, expanding its non-food business, and improving logistics center efficiency.
Unicorns (unlisted companies valued at over 1 trillion won) such as Viva Republica, the operator of the financial app Toss; Carrot, the used goods transaction platform; and Bucketplace, the operator of the furniture and interior distribution platform Ohouse, also returned to profitability last year.
In the domestic startup market, the proportion of companies recording profits reached 10%. According to Mark & Company, the operator of the startup data platform Innovation Forest, among 6,350 domestic startups for which performance data was compiled, 647 companies (10.2%) succeeded in turning to profitability last year. Achieving a profit rate of 10% in the startup market, not in conventional corporations, is a high figure.
◇Deterioration of the innovation ecosystem: "AI must thrive globally"
However, as more startups pursue immediate profits, there are concerns that the innovation capacity of the domestic startup ecosystem may decline.
In fact, if we look at the current state of domestic startups and venture capital, funds are increasingly flowing into safer late-stage startups. According to the Ministry of SMEs and Startups, venture capital invested in startups established for three years or less decreased by 17% to 2.22 trillion won last year. In contrast, investment in late-stage startups with more than seven years of establishment rose by 23.3% to 6.36 trillion won.
Lee Ki-dae, the head of the Startup Alliance Center, stated, "The startup ecosystem for discovering and nurturing new innovative companies is deteriorating," adding, "Nevertheless, investments in the AI sector are increasing, and the number of startups trying to expand globally, beyond South Korea to countries like the United States, is steadily rising," pointing out the need for the domestic startup sector to revive through trends in AI and globalization after experiencing a harsh investment environment.
Professor Kim Soo-wook from Seoul National University’s Business School emphasized that this crisis should be seen as an opportunity. He stated, "Not only is it vital to gain recognition for innovative growth, but financially, the 'sifting of solid startups from the chaff' has already begun," and added, "While the startup investment market during the past boom was like 'pouring water into a bottomless bucket,' we now need to discover startups capable of genuine growth to create an opportunity for national growth."