Flexible Rules Could Lift Korea Startup Funding

Flexible Rules Could Lift Korea Startup Funding

South Korea could attract an additional ₩2.4 trillion in annual venture capital investment and see hundreds more startups launched each year if digital regulations become more enabling, according to a new study by Oxford Economics commissioned by Digital Prosperity Asia (DPA).

The report argues that while digital regulations play an important role in strengthening trust, security and consumer protection, growing compliance requirements are placing an increasing burden on startups, affecting their ability to innovate, raise capital and scale their businesses.

According to Oxford Economics' modelling, a more flexible regulatory framework between 2026 and 2035 could increase annual startup formation by around 15 percent, equivalent to about 240 additional startups a year, while supporting roughly 21,000 startup jobs by 2035. Conversely, a more restrictive regulatory environment could reduce startup formation by 8 percent and cut annual venture capital investment by an estimated ₩1.3 trillion.

«South Korea's startup ecosystem is among the strongest in Asia, but our research suggests that regulatory design is becoming a key determinant of future growth,» said Henry Worthington, Managing Director of Economic Consulting at Oxford Economics.

«While regulation remains essential for building trust and protecting consumers, the economic stakes are significant. Our modelling shows that a more enabling regulatory environment could drive greater startup formation, attract more investment and support job creation over the coming decade, helping South Korea remain a leading destination for digital innovation.»

The findings are based on a survey of 500 startup ecosystem participants in South Korea, supplemented by expert interviews and economic modelling.

The study suggests compliance has evolved from a regulatory obligation into a structural business cost for many startups.

According to the survey, 86 percent of South Korean startups say digital regulations create operational constraints, while almost one-quarter describe the impact as major or severe. More than three-quarters allocate over 5 percent of their operating costs to compliance, and 44 percent of those spend more than 15 percent of operating expenses meeting regulatory requirements.

Nearly four in five startups reported reorganising their operations to comply with digital rules, including adopting compliant cloud infrastructure, introducing new compliance processes and relying more heavily on external legal and advisory services.

The report also found that regulatory requirements are increasingly diverting resources away from innovation. Some 77 percent of startups said digital regulations had affected innovation activity, while 58 percent reported shifting financial resources from research and development towards compliance. Almost half said regulatory obligations had delayed product launches or extended time-to-market.

The impact also extends to fundraising, according to the study.

Half of surveyed startups said digital regulations increase uncertainty around investment returns, making it more difficult to raise capital. Among venture capital investors, 58 percent said regulatory requirements make expected returns less predictable, while half indicated they would reduce exposure to higher-risk startups if regulations became more stringent.

«For startups and SMEs, digital regulations are not abstract policy issues. They shape everyday decisions around product development, hiring, fundraising and market expansion,» said Koh Liang Wei from the DPA Secretariat.

«This study highlights the importance of ensuring that regulatory frameworks are risk-based, proportionate and practical for businesses of different sizes and stages.»

The report concludes that the design of digital regulation will play an increasingly important role in determining South Korea's competitiveness as one of Asia's leading technology and innovation hubs, particularly as policymakers seek to balance consumer protection with economic growth and investment.