[Exclusive] Failed to Make It Through 'Death Valley'... One in Four Companies That Received Youth Startup Funding Shut Down Within Five Years

[Financial News] One in four companies that received the government's Youth Startup Fund shut down within five years. Although the government is expanding startup support by doubling next year's budget for the fund, critics say policies to help companies survive and grow after launch remain inadequate. Calls are growing for the government to build a growth ladder that goes beyond opening the door to youth entrepreneurship and leads to follow-on investment and access to sales channels.
According to data submitted by the Korea SMEs and Startups Agency (KOSME) to the office of Kim Won-i, a lawmaker on the National Assembly's Trade, Industry, Energy, SMEs, and Startups Committee, an analysis of startups that received the Youth Startup Fund from 2015 through August this year found that an average of 25% had shut down within five years. In other words, one in four startups closed within five years of receiving the funding.
The Youth Startup Fund is a flagship policy financing program through which the government provides initial "seed funding" to young people with limited financial resources so they can turn their ideas into businesses. It offers loans of up to 100 million won at a low annual interest rate of 2.5% to companies less than three years old whose representatives are 39 or younger, as well as to young people preparing to launch a business. Companies operating in priority areas, such as manufacturing, innovative growth, and regional flagship industries, can receive up to 200 million won. The program has continued for more than a decade since its launch in 2012 to foster young entrepreneurs.
Although companies are expected to use the initial funding as a springboard to enter the growth stage, critics say many fail to overcome the "Death Valley" in their fifth to seventh years because of limited investment and follow-up support. Of the 1,696 companies that received funding in 2020, 429, or 25.3%, had shut down, while eight, or 0.6%, had suspended operations. Among the 2,147 companies funded in 2021, 506, or 23.5%, had closed.
The longer ago a company received support, the lower its survival rate. Among companies that received funding in 2016 and 2017, the rate of suspension or closure was found to be approximately 45%. This means that one in two companies either shut down after failing to grow further or struggled to continue operating properly.
As the government moves to stimulate entrepreneurship by doubling next year's Youth Startup Fund budget from 200 billion won to 400 billion won, critics say it must build a growth ladder that supports companies through scale-up rather than merely increasing the number of new businesses.
Rep. Kim Won-i said, "Even if companies establish themselves through policy financing in the early stages of a startup, they will inevitably hit a wall if they cannot secure investors and sales channels during the growth stage," emphasizing, "The government must pursue systematic and consistent policy support covering the entire process for youth-led companies, from their early startup phase through investment, growth, and exit."
[email protected] Lee Ju-mi Reporter