University startups in S. Korea survive longer than OECD peers, but turn unprofitable after 5 years

By Kim Byeo-ri, The Herald Business

Seven to eight out of every 10 university startups in South Korea survive beyond five years, yet the technology transfer rate — the share of core university technologies that successfully reach commercialization — stands at just 26%, a Bank of Korea report showed Thursday. Core technologies are being shelved as startups buckle under the financial pressure of commercialization.

The report, titled "Building a Growth Ladder for a Qualitative Transformation of University Entrepreneurship," found that the five-year survival rate for domestic university startups is 75%, exceeding the OECD average of 45.4%. The number of university startups has also nearly tripled, rising from 987 in 2011 to 2,887 in 2024.

However, the technology transfer rate — measured as the number of technology transfers divided by the number of newly secured technologies — reached only 26%, falling short of the United States (40.9%) and the United Kingdom (61%). The report said core technologies are being abandoned as startups face mounting financial pressure while trying to scale their businesses.

A Bank of Korea analysis of Korea Company Data (KoDATA) data found that university startups slip into operating losses from their fifth year onward, as cost growth outpaces sales growth.

The report divided the startup process into four stages — project launch, commercialization, scale-up, and follow-on investment and exit — and diagnosed structural constraints at each stage.

At the project launch stage, the report said high personal costs in the event of startup failure and insufficient performance incentives for university faculty to support entrepreneurship act as key constraints.

At the commercialization and scale-up stages, startups struggle to attract initial investment and then fail again to secure follow-on funding after early survival, meaning they face two separate "valleys of death" where capital dries up. Deep tech companies — those built on core technologies in engineering fields such as AI, robotics and semiconductors — are particularly affected, as the longer timelines required for technology validation and commercialization extend the period during which investment is difficult to secure.

At the follow-on investment and exit stage, the relatively high proportion of initial public offerings — which take longer to generate returns compared with leading startup ecosystems — weakens investor motivation. Multilayered regulations on corporate venture capital also shrink the pool of potential acquirers, limiting intermediate exit options before an IPO through mergers and acquisitions.

As remedies, the report recommended building a growth ladder for innovative startups around three pillars: university governance reform, a demand-side role for the public sector, and incentives to attract private investment.

At the project launch stage, the report said institutional rigidity should be eased and safety nets strengthened. For the commercialization stage, it called for enhanced expertise and expanded infrastructure, while for the scale-up stage it stressed the need to overcome the "second valley of death." It particularly proposed creating a special provision to recognize intellectual property as collateral in technology guarantee assessments. The report also said a "catalytic scale-up investment structure" should be established to encourage the pairing of public funds with private investors.

For the follow-on investment and exit stage, the report said exit pathways should be diversified and follow-on investment activated. "Incentives should be provided when investing companies acquire technologies from university startups, and regulatory rationalization measures to promote strategic investment in innovative university startups should be reviewed," it said.