Startups May Fail Screening, But Should Never Be Forced Out

In Silicon Valley, even failed founders receive investment again. This is because the experience of failure is treated not as a cost but as an asset. Watching thousands of founders on the front lines of the startup ecosystem for nearly 20 years, I learned one thing. What they truly fear is not failure. It is the door to trying again closing after they fail. In a country where a single rejection becomes a permanent exit, young people do not take on challenges.

Where there is competition, there is bound to be elimination. Licensing reviews are no different. As long as there are reviews, it is natural for some companies to fail them, and it should be so. The problem is not the elimination itself, but a structure in which elimination immediately becomes exit.

That was the case with the Financial Services Commission's preliminary licensing review for fractional investment over-the-counter exchanges last February. Two consortiums backed by large securities infrastructure received preliminary approval, but one consortium led by a startup was eliminated. The two that passed are latecomers who never took on risk in the process of creating this market, while the one that was eliminated is a pioneer that staked its survival on building standards from a time when the market did not exist. That startup is Lucent Block.

Lucent Block was founded in Daejeon in 2018 and in 2021 was designated by the FSC as Korea's first real estate tokenized securities platform under the innovative financial services program, the so-called regulatory sandbox. Since then, operating the fractional investment platform "Soyu," it has secured 500,000 users over more than four years without a single financial incident, and has issued and distributed securities worth 30 billion won. The fractional investment over-the-counter trading market did not exist before Lucent Block paved the way.

Naturally, considerable questions have been raised in the National Assembly over the review process and criteria. This is not to dispute the review results, but one issue that cannot be overlooked remains. It is the issue of a promise the state made to founders.

The 2021 regulatory sandbox designation was a promise the government made to the startup Lucent Block. It was a promise that, since there was no system in place, the company should try first, and the government would watch to see whether it could become a new path. Trusting that promise, the company undertook empirical testing for more than four years. Under the authorities' oversight, it proved that a market could be established without financial incidents, and as the result of that testing, the system of the fractional investment over-the-counter exchange was created.

Yet at the very moment the system opened its doors, the company that had borne the testing was eliminated, and no channel to try again was even prepared. Having told the company to pave a path, the government blocked the very one who paved it once the path was opened. I want to ask. Would the next generation of founders who witnessed this scene really throw themselves into innovation in regulated industries? To someone who staked their life trusting a promise, the state should at least open the opportunity to try again.

The government speaks of "startups for all." In an era when the number of young people who are "resting" reaches 650,000, there is no ladder of hope as certain as starting a business. But to tell young people to start businesses, the government must first give them the belief that those who take on the challenge first will not lose eight years entirely over a single review.

The regions are even more desperate. About 80% of Korea's angel investment is concentrated in the metropolitan area. In that barren environment, a regional startup like Lucent Block of Daejeon, which endured eight years to create a nationwide financial service, is by its very existence a rare success story. Young people in Daejeon, Gwangju, and Busan are watching such a company collapse at the threshold of the system.

The same concern has been raised in the National Assembly. Last month, Rep. Min Byoung-dug of the National Assembly's National Policy Committee proposed to the FSC that Lucent Block be allowed to apply for an additional preliminary license, pointing out that when a company verified through the regulatory sandbox is eliminated like this, the will to start businesses can be dampened. This means it is not a matter of partisanship but a matter of the ecosystem.

As it happens, August is the month when the two consortiums that received preliminary approval apply for final approval. For the FSC to open the door to additional preliminary approval at this juncture is not a favor to a particular company. It is a matter of giving a market pioneer like Lucent Block the opportunity to compete again. The market gains one more proven competitor, and investors gain wider choices.

Reviews can be as strict as necessary. If a company falls short of the criteria, it can be eliminated again. But the opportunity to try itself must not be closed.

A startup is the seed of innovation and creation. A seed does not necessarily die just because it has been trampled once. But there must be ground for it to sprout again. What we must show young people, the regions, and this country's next challengers is a society where they can knock on the door again no matter how many times they fall. There may be elimination, but there must be no forced exit.