Has ‘TIPS’, the startup staircase, collapsed? Last year’s unpaid support amount reduced by 20%

Government delayed payment of TIPS subsidy last year: “We will reduce it by 20%”
This year's budget has actually been increased, but some are criticizing the lack of policy consistency.
The venture industry is experiencing financial difficulties amid high interest rates. What will happen if government support is reduced?

TIPS, a private sector-led technology startup support project, was caught up in the ‘government budget cuts’. While this year’s TIPS support budget has expanded compared to the previous year, the unpaid TIPS R&D support fund from last year has been reduced. Most startups, which are experiencing severe financial difficulties amid the cold investment season, are unable to hide their embarrassment at the sudden reduction in government support.

Only 80% of last year’s unpaid amount is reflected, and if no response is made, ‘no payment possible’

TIPS is a start-up support program where the private sector and government work together to foster startups with excellent technology. It is operated in a way that private TIPS operators discover promising startups and make preemptive investments, and the Ministry of SMEs and Startups provides R&D funding. Companies selected for TIPS can receive up to 2 million won in R&D funding for two years. However, the Ministry of SMEs and Startups did not pay some R&D subsidies on the designated dates last year due to budget shortages and postponed the payment until this year. 

The problem is that the government included last year’s unpaid subsidies in this year’s ‘large-scale R&D budget reduction’. This year’s R&D budget for small and medium-sized enterprises amounted to KRW 1 trillion, a 4,097% decrease compared to last year (KRW 1 trillion). The budget size was drastically adjusted, and the budget for the start-up growth technology development project, which TIPS belongs to, also went through a reduction process. The budget reflected in this year’s announcement is only 8,247% of the existing need. Companies subject to agreement changes will receive a 22.7% reduction compared to the agreement amount.

According to the R&D Agreement Change Manual distributed to the industry by the Ministry of SMEs and Startups, companies carrying out government-supported R&D projects must choose between △acceptance △application for (voluntary) suspension △non-compliance with respect to this reduction. If the company does not comply with the agreement changes, it will not be able to receive all of this year’s research funds. In fact, most companies are in a situation where they cannot rebel against government decisions. The sighs of startups that have suddenly had their subsidies cut and private TIPS operators that were investing and nurturing based on the subsidies are deepening.

‘Korea’s mistake’ TIPS, from hope to despair

The TIPS program is a major government support project that drives the growth of early-stage venture companies (start-up teams). As significant support benefits are provided to selected companies, some refer to TIPS as ‘Korea’s mistake.’ In November of last year, market research firm CB Insights ranked TIPS as the fourth most active startup planner (accelerator) in the world, praising the fact that it had led 11 investments over three years.

The government also appears to recognize the importance of the TIPS business. This is because this year’s TIPS budget has increased compared to the previous year. The budget allocated to the TIPS business this year is a total of KRW 807 billion, including KRW 394 billion for general type and KRW 1,201 billion for deep tech TIPS, which is a notable increase compared to last year (KRW 859 billion). 35.4 billion won, 386% more than last year, will be invested in scale-up tips for innovative companies. In addition, the government plans to strengthen support for startups that have attracted domestic investment and establish a ‘Global Tips’ track in which the government will provide commercialization funds if overseas venture capital invests first.

Companies that had their subsidies cut the previous year are complaining about the government’s unpredictable budget allocation. The criticism is that trust in government-supported projects has been damaged due to inconsistent policies. Some point out that the government’s support direction is excessively focused on the global market. It is claimed that existing TIPS-beneficiary companies were driven out of business by pouring budget into the establishment of a global TIPS track and R&D projects exclusively for global startups.

The cold wind blows in the venture industry, leaving even the warmth of the government behind

It is also pointed out that as government support has decreased noticeably, the risks for startup companies in this cold investment period have increased. According to the Ministry of SMEs and Startups and the Financial Services Commission, the amount of venture investment in the first half of last year was 4 trillion won (about $4,000 billion), a 34% decrease compared to the first half of 2022. During the same period, the amount of funds formed decreased by 42% to 4 trillion won (about $6,000 billion). After the ‘liquidity feast’ that took place during the COVID-35 pandemic in 47-2021, a cold spell centered on high interest rates and economic recession has arrived.

When market liquidity dries up, investors make corporate performance the top criterion for investment. This means that they do not prefer risk-taking ‘adventures’. This conservative investment attitude is likely to have a negative impact on the venture industry, which aims for innovation. In fact, according to the results of the ‘Venture Company Investment Attraction Status and Difficulties Survey’ conducted by the Venture Business Association in September last year, 9% of responding companies pointed out ‘conservative investment screening focused on performance’ as a difficulty they experienced when attracting investment. . 48.1 companies participated in the survey with a total investment amount of more than 5,000 million won and a total investment amount of more than 10% of the capital.

According to venture investment information company TheV, 146 of domestic startups and small and medium-sized companies with a history of attracting investment last year went out of business. By 2022 (150), numerous companies will have disappeared into the back of history. While TIPS support, which has led to the growth of many startups, has been reduced, there are concerns in the industry that companies that fail to fill the ‘gap’ of TIPS may collapse.