Startups pinning hopes on crowdfunding

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Startups pinning hopes on crowdfunding

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Four entrepreneurs receive business capital raised through crowdfunding at a contest Thursday hosted by the Ministry of Science, ICT and Future Planning at Coex, southern Seoul. The contest was part of the Creative Korea 2013 convention, held to boost startups by young people and encourage crowdfunding. Provided by Korea Institute of Digital Finance

Wearing a black blazer and tailored slacks, college junior Kim Ah-reum looked like a genuine entrepreneur as she pitched her business idea to a larger-than-expected crowd at Coex in southern Seoul.

She wants to be: Kim and her college business club friends have developed a free mobile commerce app. But she got up on the stage Thursday to rustle up some funding for the business to take off. The app, called Jumoni, or purse in Korean, provides free marketing services for small businesses in local commercial areas.

“Conglomerates spend a lot on marketing to keep their business on consumers’ minds, while small business owners in our neighborhood can’t afford to do that,” Kim told the crowd. “With Jumoni, they can present themselves to consumers and start marketing activities by giving out discount coupons.”

Nine wannabe entrepreneurs, and some novices, including college students like Kim and slightly older people in their 30s, gathered at an open contest on the first day of a crowdfunding conference, part of the Creative Korea 2013 convention held at Coex, southern Seoul.

They presented their business ideas to judges and an audience. The most persuasive of the pitches received funding, collected through crowdfunding, on the spot of up to 30 million won ($28,500).

Crowdfunding, or social funding, has gotten a boost in Korea partly thanks to the Park Geun-hye administration’s push of a more creative Korean economy. Crowdfunding is already practiced in Western countries through fundraising websites such as Kickstarter and Indiegogo, and person-to-person loan sites like Prosper.

It’s a concept that is broad and can apply to many activities from commerce and other businesses to charity or even journalism. Basically, crowdfunding refers to gathering many small contributions from the public. It encompasses donations, compensation, loans and investments. Donations and compensation are often done in the arts scene, while loans usually go to business startups. Crowdfunding investments have not been legally approved in Korea. The United States first legalized them last year.

People wishing to raise money make their pitches on websites. If the pitch is a success, a “crowd” of individual contributors chip in a small amount each. If the contribution is compensation or a loan, they get paid back in cash, including some form of interest. The fund-raiser pays the website a certain portion of the final amount as a service charge. The fee is often waived for nonprofit organizations.

According to the Crowd Research Institute, Korea’s crowdfunding market is estimated to have reached 53 billion won as of this year. The institute says it could reach 800 billion won if investment crowdfunding is made legal. Analysts say Korea’s startups need any help they can get, including crowdfunding investments.

“Current laws are heavily focused on benefiting the already-existing startups, which is relatively disadvantageous for young entrepreneurs,” said Kim Su-dong, co-head of the Korea Association of Science and Technology. “I wish the government would ease the tax regulations for one thing.”

“Crowdfunding is a great trend for startups, especially those in the manufacturing sector.” said Ko San, a judge at the crowdfunding conference and CEO of the Tide Institute, which promotes startups. “Now is the era when convergence between software and hardware is so significant. It will give room for many manufacturing startups to grow.”

Im Hyeon-chae, a Yonsei University student and CEO of a company called Cielo, which makes ear rings, was the only competitor at the conference in manufacturing. The rest were in the IT, mobile and service sectors. Im said he started his business purely out of interest in piercing and related fashion accessories.

“I believe a startup doesn’t necessary have to be accompanied by high technology, because manufacturing is still a crucial part of the Korean economy,” Im said. “Idea-based products still appeal to consumers.”

“The main purpose of your startup should be expression of yourself, not making profit,” Kim Dong-yun, chairman of Korea Finance Platform told the contestants at the conference. “In the process, crowdfunding is not just a way to foster business capital. Your business grows with the public and shares its success with them.”

BY KIM JI-YOON [jiyoon.kim@joongang.co.kr]

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