Start-up employees return to bigger companies amid limited funding

A view of Pangyo Techno Valley in Pangyo, Gyoenggi [JOONGANG PHOTO]

Start-up employees are returning to bigger companies as start-ups strive to overcome limited funding.

During the tech boom in 2020, start-ups attracted young, competent employees from conglomerates with fat bonuses and stock options. IT developers in particular were offered up to four-digit incentives.

But they are no longer able to offer such incentives as investors cut funding amid economic uncertainties, including steep inflation, monetary tightening and weak growth.

Real estate start-up Zigbang offered 60 million won ($45,000) plus 100 million won in bonuses to a rookie IT developer in early 2021. But it downsized this year, with around 10 percent of the workers having left the firm.

Fintech start-up Bank Salad, workspace provider Fastfive and online class platform Class101 also pushed restructuring, citing a lack of funding and preemptive measures for recession.

“I returned to the company I used to work for” before moving to a start-up, said a 32-year-old IT developer surnamed Kim, who used to work at a financial platform start-up based in Pangyo, Gyeonggi. Kim moved to a start-up in late 2020 after he was offered a salary increase of 20 million won, but returned in April and took a cut. “It was more difficult than when I first got the job.”

The turnover gap between conglomerates and small and mid-sized companies grew to 1.8 percent in the first quarter from 1.2 percent in the same period two years earlier. The larger gap implies a bigger turnover rate at conglomerates.

“A start-up exodus is occurring in just two to three years,” said a source from a headhunting industry on the condition of anonymity.

Start-ups are forced to let go of employees as investors cut funding.

Covid-19 spurred demand for various technologies, including virtual meetings and video streaming services. Investments in technology accelerated accordingly. But investors have turned away as the economy withered from global economic uncertainties, including Covid-19 lockdowns.

The total venture capital investment in the first quarter was 881.5 billion won, down 60.3 percent from the same period a year earlier, according to the Ministry of SMEs and Startups. Investment in ICT plunged the most at 74.2 percent, followed by games at 73.7 percent.

“The salary difference of IT developers with 10 years of experience at conglomerates or start-ups isn’t large, ranging between 80 million won and 100 million won,” said the source from the headhunting industry. “Start-ups offer stock options, giving workers a chance to hit the jackpot. But that isn’t such a merit anymore since the industry is going through difficulties.”

Employees are feeling the shift in demand.

“Up until early last year, they were saying that developers are able to decide their salary,” said a developer at a start-up. But these days, “it’s a relief not to be let go from the company, never mind raising your salary by moving to a new company. I don’t think I will be able to receive the entire amount of the incentive I was promised.”

Employees are concerned about salary cuts, the developer added.

Changes in this trend were witnessed by cafes and restaurants located nearby the start-up offices.

“We reduced our operating hours because we are no longer seeing customers for dinner but are only seeing a crowd during commuting and lunch hours,” said an operator of a café in Pangyo. Lights at the offices used to be on for 24 hours.

Experts say these are the signs signaling the burst of the start-up bubble.

“There was a general investment boom during the pandemic regardless of a company’s business management capacity,” said Sung Tae-yoon, an economics professor at Yonsei University. “Young workers were attracted to additional rewards, like stock options, but they are now finding a way to make a living as the situation has been aggravated in a short period.”

Lee Chae-ho, a business professor at Dongguk University said, “Start-ups are inevitably sensitive to the flow of the economy.” He added, “Investment needs to continue in a long view” as its ecosystem affects economic recovery.

BY KO SUK-HYUN, KIM SU-MIN [jin.minji@joongang.co.kr]