University-Based Companies Surge, But Qualitative Transition Lags

South Korean universities are witnessing a significant quantitative expansion in the number of startups, with their ranks nearly tripling from 987 in 2011 to 2,887 in 2024. This surge, driven by enhanced university-based entrepreneurial infrastructure, has led to a 5-year survival rate of 74% for these university-affiliated ventures, significantly outperforming the general startup survival rate of 33.8% and the OECD average of 45.4%. A report by the Bank of Korea's Economic Research Institute suggests these figures reflect successful policy efforts in lowering the barriers to initial entrepreneurship and broadening the ecosystem's base.

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University innovation startups have the characteristics of deep tech and knowledge industries where it takes a long time to commercialize products and enter the market. As a result, the 'valley of death' extends beyond the initial business phase to the scale-up stage, leading to the accumulation of original technologies that do not create economic value.

However, the report, titled "Measures to Build a Growth Ladder for the Qualitative Transition of University Startups," identifies a critical gap: a lack of qualitative advancement in commercializing original technologies. The technology transfer rate, defined as the ratio of technology transfers to new technologies acquired by companies, stands at a mere 26%. This figure lags considerably behind the United States (40.9%) and the United Kingdom (61.0%). Furthermore, the rate at which technology transfers lead to sales has declined from 26.6% in 2019 to 19.2% in 2023.

Even for startups that achieve commercial success, profitability remains a challenge. Their operating profit margins have worsened, dropping from 1.2% in their first year to -3.3% by their fifth year. Concurrently, their debt-to-equity ratio has climbed to 159.2%, exceeding the average for small and medium-sized manufacturing enterprises (111.2%). The Bank of Korea attributes this to the nature of deep technology and knowledge-intensive industries, which often require longer development cycles for product commercialization and market entry. This extended timeline, termed the "valley of death," can stretch from the initial startup phase into the scale-up stage, leading to the accumulation of original technologies that fail to generate economic value.

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Establish procedures to reflect technology transfer and startup achievements in faculty performance evaluations, which are currently focused on academic activities. Standardize technology transfer agreements between universities and entrepreneurs and make them public.

To address these qualitative shortcomings, the research institute proposes several solutions. Jung Jong-woo, head of the Labor and Population Research Division, suggests establishing procedures to reflect technology transfer and startup achievements in faculty performance evaluations, which are currently heavily focused on academic activities. Standardizing technology transfer agreements between universities and entrepreneurs, including details on equity stakes, royalties, and fees, and making these public is also recommended. For the scale-up phase, the report advocates for public sector intervention, acting as a customer to help startups overcome the "second valley of death" (funding difficulties typically encountered between years three and five). This could involve introducing special provisions for intellectual property-backed loans or repayment plans linked to revenue.

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In the scale-up phase, the public sector should act as a customer to help startups overcome the 'second valley of death' by introducing special provisions for intellectual property-backed loans or revenue-linked repayment plans.