Hard times for start-ups

Haansoft Inc. -- once a proud name among local technology start-ups -- is in an executive dilemma. Last Friday, the board fired Kim Geun and appointed Ryu Han-ung as the company's new chief executive. But Mr. Kim objected and has refused to leave. The two chief executives both go to work with their own lawyers. They both have their own corporate seal. Other executives of the firm have taken sides, while anxious employees have stopped working. The situation at Haansoft, which used to be considered a start-up success story, clearly shows where the industry is headed in Korea. Start-up companies that were once said to be a driving force of the domestic economy are now in disarray. Industry observers say the government's overly protective start-up policy produced thousands of uncompetitive technology firms. The bubble that was created during the process has finally burst. No single shareholder in Haansoft holds more than a 1 percent stake. On Jan. 24, when Nexgen Capital Ltd., a Hong Kong-based investment firm, sold its 9.4 percent stake to minority shareholders, disputes over Haansoft management erupted. Institutional investors no longer see Haansoft as attractive. Its results have been disappointing with a 13 billion won ($10.84 million) loss last year and a 41.9-billion won loss in 2001. The recent management disputes have quickened the company's fall from grace. The rise and fall of start-up companies over the past five years has been well illustrated in Seoul's "Teheran Valley," once the home of technology and Internet start-ups around Teheran Street in the city's south. Offices remain empty after numerous start-up firms quit due to heavy losses and bankruptcies. Many have been replaced by money-lenders and loan sharks. "Now no-one is paying attention to Internet firms as much as to the fate of Teheran Valley itself," said Kim Seong-ho, an official at the Korea Internet Corporations Association. Oh Sang-Su, the founder of Serome Technology Inc., Chun Jae-wan, the founder of Freechal Inc., and Lee Jin-seong, the founder of Intz.com, have all been arrested or prosecuted for being involved in accounting fraud. Even the most promising start-ups have fallen victim to speculation and fraud. SIMS Valley Co. once dominated 15 percent of the digital recorder market. But its controlling shareholders changed five times from October 2001 to the middle of last year. The 20 billion won it raised through an initial public offering disappeared before its chief executive was arrested for embezzling 9 billion won and the company delisted from the Kosdaq market. "How the firm ended was miserable," a staff member lamented. "Management had a delusion it would make a killing without investing in research and development." An increasing number of start-ups are now searching for new owners as a last resort. But with such firms neither profitable nor in possession of promising technology, potential buyers are very hard to find. "About 30 percent of 8,000 start-up firms that were certified as 'venture companies' are looking for new investors," said Yun Jong-hun, a senior official at the Small Business Corp. "It is a downward spiral." Analysts say now is the right time for the government to revive start-ups on a level playing field with other firms. "The government should not protect start-ups," said Lee Eon-oh, a researcher at Samsung Economic Research Institute. by Kim Jong-yoon