South Korean entrepreneurs face unique challenges before launching startups, including securing approval from their families, known as the 'mother test' and 'spouse test'. This is due to the high personal financial risks and family debt burdens associated with startup failures.
TL;DR
- South Korean founders must secure family approval before launching startups due to high personal financial risks.
- Most startup funding comes from personal funds, with 95.2% of founders using their own money, according to a Ministry of SMEs and Startups survey.
- The biggest obstacles to starting a business in South Korea are securing funds (53.7%) and fear of failure (41.8%).
What happened
In South Korea, entrepreneurs must first secure approval from their families before launching startups, known as the 'mother test' and 'spouse test'. This is due to the high personal financial risks and family debt burdens associated with startup failures.
Kim Soo-jin, founder of Yamm Yamm Food, faced opposition from her father when starting her business. She had to break a savings account containing 30 million Korean won to fund her startup.
Jang Seung-rae, founder of digital logistics startup Diver, had to pass the 'spouse test' when planning his first business. Despite initial success, poor inventory management led to 1 billion Korean won in debt within four years.
Shin Jae-wook, founder of wellness platform Dallam, struggled during COVID-19, taking loans from secondary financial institutions to keep his business afloat.
Why it matters
The 'mother test' and 'spouse test' are unique to South Korea, where families share the burden of startup failures. This makes family approval a crucial step in the startup process.
Most startup funding comes from personal funds, with 95.2% of founders using their own money, according to a Ministry of SMEs and Startups survey. This highlights the high personal financial risks associated with starting a business in South Korea.
The biggest obstacles to starting a business in South Korea are securing funds (53.7%) and fear of failure (41.8%). This underscores the need for more support and resources for entrepreneurs in the country.
Key facts
- The average startup funding in South Korea is 206 million Korean won, according to a Ministry of SMEs and Startups survey.
- 95.2% of South Korean founders use personal funds to start their businesses, with overlapping answers.
- 28.3% of founders take bank or non-bank loans, and 8.8% borrow from individuals.
- The biggest obstacles to starting a business in South Korea are securing funds (53.7%) and fear of failure (41.8%).
- Kim Soo-jin had to break a savings account containing 30 million Korean won to fund her startup.
- Jang Seung-rae's business incurred 1 billion Korean won in debt within four years due to poor inventory management.
- Shin Jae-wook had to take loans from secondary financial institutions to keep his business afloat during COVID-19.
Context
Starting a business in South Korea is challenging due to the high personal financial risks and family debt burdens associated with startup failures. This is why the 'mother test' and 'spouse test' are crucial steps in the startup process.
The Ministry of SMEs and Startups survey highlights the need for more support and resources for entrepreneurs in South Korea. This includes access to funding, mentorship, and networking opportunities.
The startup ecosystem in South Korea is growing, with more and more entrepreneurs launching businesses in various sectors. However, the high personal financial risks and family debt burdens remain significant challenges that need to be addressed.