Korean startups have a lot in common, the main being that they are always looking to raise funds. If you are not in Seoul, it could be very hard to find funding for your company. Now that Korea created the crowdfunding platforms, funding got a whole lot easier. The Financial Services Commission (FSC) approved crowdfunding platforms because they wanted to support a creative economy. Since the approval, more than 7,000 investors have invested over $18 million in over 120 companies in Korea.
Crowdfunding gives small startups the ability to raise money from a large number of normal everyday people rather than a small group of investors. These “public” investors are now possible thanks to the growing connection around the world through social media and the internet. Crowdfunding has been around for a while. However, it is relatively new to Korea. The FSC allowed for equity crowdfunding to help give Korean startups another way to access financial resources. Now, crowdfunding platforms such as tumblbug are growing rapidly.
Before there was crowdfunding in Korea, investors would usually only look at startup’s documents and profitability. Now with crowdfunding more and more Korean VCs and public investors are looking at the startup’s passion and vision. Most investors in crowdfunding platforms tend to believe more in the product or service. It is a win-win for the startups and the investors. Investors will get a chance to invest in something that is not available in stores, while at the same time startups can get funding without having the product available ahead of time. Therefore crowdfunding helps companies become more creative and willing to run with their ideas.
Investing overall has gone up in Korea since the start of crowdfunding. Now the common person in Korea with just 1-2 million won in the bank can become investors through crowdfunding. Startups have the potential for higher returns than other financial institutions.
Those that are eligible for crowdfunding can raise up to 700 million won per year. Companies raising above 500 million must receive a financial audit. Those that do not meet to raise 80% of their target must terminate the fund-raise. Common investors can only invest 2 million won per company and 5 million won per year overall. If they want to raise more they will need to submit forms to show they have certain qualifications such as having an annual taxable income that exceeds 100 million won. There is also another bracket for professional investors such as VCs and Angels. The Korean government is looking to push for the revision of related legislation to ease restrictions regarding crowdfunding in 2017.
It will be important for the Korean government to make crowdfunding known to the public and make crowdfunding even more attractive for companies as well as investors. So far any startup that is crowdfunding can advertise their campaign on social media, however the common Korean on the street does not know a lot about crowdfunding. It is clear that more efforts to promote the system needs to happen in 2017. So far industries related to manufacturing, filmmaking, and ICT have been major players in crowdfunding platforms.