Startups at state-run incubation center hit hard by Choi scandal

A major state-run incubation center designed to help startups is struggling to survive amid the widening influence-peddling scandal involving Choi Soon-sil, a confidante of President Park Geun-hye.

The unfolding scandal is also hurting dozens of fledgling venture startups whose previous high hopes are now seriously endangered.

The government-run project for startups, named “Cultural Creation and Convergence Belt,” or “cel,” was launched in December last year. The project was one of President Park’s major initiatives, promising to offer a variety of support measures including rent-free offices and an overseas investment fair for culture-related startups such as computer game developers, animation producers and webtoonists.

Since the launch of the project, 93 startups have been selected to receive government support ranging from help with planning to commercialization targeting global markets.

These startups, however, are facing a make-or-break crisis due to the revelations surrounding Choi, who is accused of interfering in state affairs, and President Park.

Last Thursday, cable channel TV Chosun revealed documents that detailed what appeared to be government-led initiatives, including the cel project, with notes scribbled in what seemed to be Choi’s handwriting.

The startup companies in question have already moved into the venture complex building in central Seoul set up by the Ministry of Culture, Sports and Tourism, the government body in charge of Park’s cultural projects.

An executive of a startup at the state-run center expressed concerns in an interview with The Korea Herald on Monday on condition of anonymity.

He said, “I feel like I have suddenly become a criminal or something.”

Like the other startups that received government support, his company beat the odds of 13 to one to win a spot at the center last year. “My employees and I were proud back then,” he said.

The venture cluster, praised by President Park for playing a pivotal role in boosting the cultural industry, however, turns out to have been masterminded by Cha Eun-taek, a former director of the Cultural Creation Conversion Headquarters.

Cha had led many of the state-run cultural project’s key initiatives until recently. Cha, a close acquaintance of Choi, is now accused of receiving preferential treatment to win the influential position at the organization.

The official of the startup said he had never heard of Choi or Cha until the scandal broke out.

“All I know is that they have done wrong, and now because of that, politicians are talking about cutting off state funding to anything related to those two.”

Opposition parties, including The Minjoo Party of Korea have vowed to suspend all budgets linked to the influence-peddling scandal. The budget for the cel project was 90.4 billion won ($80 million) this year, and another 127.8 billion won was on request for next year by the Culture Ministry.

“Some are saying that from next year, we might lose our office here. So we have started looking for a new office to lease. We have done nothing wrong except having applied for the government’s incubating program and somehow people are asking me if my company has anything to do with Cha.” 

Another startup worker said what worries him the most is the “loss of trust in the eyes of foreign investors.” He said “The most crucial reason for me to join the government-run complex here was to attract foreign investors with support from the government.”

“Small startups like us need assistance, both from local and foreign investors,” he added. “A scandal like this can easily scare investors away from the cluster. Any investor with the knowledge of the political turmoil would be discouraged.”

The Culture Ministry on Saturday said it would put some of its major initiatives linked to Choi on hold -- including the startup project. However, it refuted all allegations that Choi peddled influence in the ministry.

An expert with knowledge of the startup industry said on condition of anonymity that “it is important to recognize the purpose of the Cultural Creation and Convergence Belt project, which is to create a sustainable ecosystem for startups here to be more competitive outside home. Eliminating the startup fund altogether would not address the real issue.”

Choi is now under investigation at the Supreme Prosecutors’ Office in Seoul.

By Bak Se-hwan (sh@heraldcorp.com)