The extremely popular Eat Your Kimchi website, which provides humorous and educational videos on Korean culture and is written by two Canadian former English teachers, has succeeded in their quest to fundraise for their new studio and business venture on IndieGoGo. The saga they went through, though, showcases many of the issues that new entrepreneurs face in the Korean policy environment.
The founders of Eat Your Kimchi posted a request for funds last week, asking for $40,000 to pay for a studio and potentially a video editor. This is to supplement more than $100,000 of their own savings in building up their business in the country. Their story brings up many of the hurdles facing new international entrepreneurs:
Anyhow, we had a bit of a problem that we’ve been trying to work out for the past year: we don’t have Visas in Korea, since we’re not teaching. Currently we’re here on tourist visa’s which are indeed totally legal, but we’ve spent all our time since quitting teaching looking into how we can work in Korea and get a stable visa. We tried getting Entertainment visas, since we’re kinda entertainers, but those visas couldn’t be got without a company to sponsor us. And there’s no company to hire us for a business visa either, be it government or private.
This is serious problem not just plaguing Korea, but the United States as well. Starting your own business means foregoing the support of an established organization to sponsor visas, greatly decreasing the ability of new immigrants in starting and building new business ventures. In the United States, a study I often cite has shown that roughly 25% of new technology firms were started by immigrant entrepreneurs.
Immigration is a sensitive topic in almost every country. Even in Singapore, which has taken a very liberal attitude in the past few years to foreigners coming to the country and working in finance and high-technology, has recently taken a more stern approach to immigration amid concerns from the general population that the country has not fairly distributed Singapore’s wealth across all citizens.
Nonetheless, these new immigrants are often a well-spring of new ideas for technology ecosystems. There is a reason that Silicon Valley is both one of the most common diverse regions in the world and also the top innovation hub. The region’s constant change is a perfect environment to receive and utilize the news and information these newcomers bring to the ecosystem.
The next issue that E.Y.K. faced was actually purchasing the business license, an issue that I will take to task in the coming weeks in my series of research papers:
In fact, setting up a private business here is very expensive. Specifically, you need $100,000 to do so.
This cost is one that I think is quite shocking to many Americans who have considered starting businesses overseas and in Korea in particular. In the United States, one can open a business for a very low fee (in some cases with the help of services like LegalZoom, it might even be below $100). $100,000 in Korea seems unreal in comparison. Furthermore, seed- and early-stage venture financing in the United States generally provides cash in the range of $10,000 to $250,000 dollars for the first angel round. Just getting a business license could completely wipe out your bank account!
The final issue faced by E.Y.K. concerns the current real estate business model used in Korea:
Problem is, apartments in Seoul are significantly more expensive than the apartments in Bucheon. Most of our money is going into putting down the deposit for this apartment.
Korea continues to have two main systems for allocating apartments: 월세 (wol-se) and 전세 (jeon-se). Wol-se is a method in which a tenant places a deposit (known as 보증금 or bo-jeung-geum “key money”) and also pays a monthly rental rate. In Seoul, deposits for Wolse apartments tend to be around $8,000-$20,000 for a bachelor’s apartment depending on typical real estate factors. Monthly rent is $400-$1000 on top of that. Jeon-se apartments are all about the key money - a tenant places a large fee down and then never has to pay for any further rent. These are definitely more expensive, about $100,000 to the millions of dollars.
Importantly, the key deposit money is always returned at the conclusion of the housing contract. The landholder merely takes the interest of the money over the course of the tenant relationship. Historically, this system assisted the quick development of Korea’s apartment infrastructure. The key money provided the funds for the next set of apartment buildings, and then the money would be returned to the original tenant (sometimes using funds from the next tenant). This system worked until the 1997 Asian Financial Crisis, when the whole system sort of collapsed.
The problem today is that it remains very difficult for new immigrants and young people to enter the Korean real estate market. While there is a cultural component, many Korean students live with their parents following college graduation more out of economic necessity than by preference.
One of the most important take-aways from this whole story is that start-up costs are crucial to a vibrant innovation ecosystem. The costs of starting a new business need to be lowered, and also depreciated slowly over the lifetime of the company. The license fees are probably easier to change than the entire real estate market, but Korea and other countries need to really focus in on the problems faced by Eat Your Kimchi and other budding entrepreneurs if they are to build up their innovation potential.