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Krafton Founder Urges Reform to Help Korean Startups Go Global

(Bloomberg) -- For Krafton Inc. founder Chang Byung-gyu, his firm’s debut this week marks a key milestone in the game developer’s 14-year history. It also exemplifies how South Korean startups are increasingly playing a key role in the country’s $1.6 trillion economy, by driving growth both at home and overseas.

The PUBG: Battlegrounds maker raised $3.8 billion in its initial public offering, pulling off the country’s largest debut in over a decade. Despite dropping nearly a fifth since its listing, the $17.4 billion company is one of a growing number of upstarts, which include the likes of Coupang Inc. and Kakao Corp., that are taking on the sprawling family-owned conglomerates that have long dominated Korea’s economy known as chaebols.

Read more: Self-Made Billionaires Supplant Chaebol Heirs as Korea Elite

In an exclusive interview, 48-year-old Chang said South Korean startups, including the ones he backs, are increasingly venturing overseas. But for the nascent firms to succeed internationally, the government and capital markets need to work together to overhaul a chaebol-focused regulatory and legal framework, he added.

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The following excerpt from Chang’s emailed response to Bloomberg News’s questions has been translated from Korean, condensed and edited for clarity.

Bloomberg: What’s the driving force behind the development of Korea’s gaming and startup industries?

Chang Byung-gyu: First, there was investment in IT infrastructure. South Korea is the second country in the world to develop the internet (led by KAIST professor Chon Kil-nam) and the government increased the penetration of broadband in the 1990s. The rapid spread of smartphones and 3G, 4G infrastructure is also a part of IT infrastructure investment.

Second, there were government-led entrepreneurship policies. Since the Kim Dae-jung administration in late ‘90s, startups and funding policies emerged under the name of “ventures” and the direction of policies has not regressed through several governments. Thanks to the policy drive, first-generation internet companies such as Naver Corp., Nexon Co. and Neowiz were born.

Lastly, government-led development of scientific talents. KAIST, where I graduated, is where most first-generation internet founders met, and it is also an educational institution where the government invests intensively in science and technology. It has become the foundation for the development of the game and startup industries.

Where do you see the Korean startup industry heading? What are the challenges and limitations that need to be overcome?

One of the recent macro trends is that many companies are starting to go beyond Korea to challenge the global market. Naver and Nexon started in the domestic market, but Naver succeeded in Japan with Line Corp., and Nexon gained success in China with online games. Krafton also became successful globally with PUBG: Battlegrounds.

It has become a big trend for startups and tech companies to start or grow their business by targeting the global market. For example, a startup called Nearthlab, which BonAngels (the venture capital firm that Chang founded) has invested in, uses drones to manage and repair wind turbines. The company has signed many contracts with global companies that make and service wind power generators, and it is growing with the global market from the beginning. Hyperconnect has also succeeded in the Middle East market.

But it is still not easy for Korean companies to expand globally. The lack of experience in global cooperation is one of the main reasons. The U.S. has a lot of experience, but Korean companies often do not have such human resources, systems, or culture to collaborate when entering foreign markets.

Another challenge is that Korea still has a social system centered on the chaebol. Korea’s capital markets and legal system are centered on chaebols and developed to regulate chaebols. Especially from the U.S. perspective, the capital market and regulations are too Korean. Startups and tech companies are going global and the legal system now has to change. This is a problem that the government and capital markets should address together. Overcoming these points will lead to greater growth.

Earlier this year, you announced you were giving away some stock to employees. Why?

Korea’s capital market is not as developed as in the U.S. One of the problems with stock options in Korea is that when they are converted into stock, you have to pay tax immediately, while in the U.S., you can pay tax after you cash in the stock. Stock options need to be improved from a capital market perspective.

Although there are several systems such as stock options, Restricted Stock Units (RSU), and employee stock ownership plans, there are not many ways for a new company to offer compensation if we take taxes into account. I decided that giving away stock would be the best way.

Wealth and growth are increasingly shifting away from chaebols to the internet, gaming and entertainment sectors. Is this a positive trend?

Chaebol-led growth and wealth centered on high-end manufacturing industries such as semiconductors, petrochemicals, steel and shipbuilding are still very important to Korea. However, growth and wealth from internet, gaming and entertainment companies can be described as the fourth industrial revolution. It is inspiring that non-manufacturing businesses can directly target the global market and both should coexist and develop in a balanced way.

Korea’s entry into the ranks of developed nations means that the business and growth models of developing countries no longer work. We need a smooth industrial transition to high-tech manufacturing, healthcare, biotechnology, and global services to leap ahead as a developed nation.

You are one of several billionaire startup founders making large donations. What are your views on philanthropy?

We are in an era of polarization and I believe that donation can be a way to alleviate the wealth gap. Just as doing business is about making money and realizing your beliefs and vision, donating is about spending money and realizing your beliefs and visions. My donation to KAIST was carried out with a clear sense of purpose to increase the chance of accidental success, and the Software Academy Jungle (Chang’s mentoring program at KAIST) also has a purpose -- training software engineers. I am ready to spend my money to realize my vision and beliefs going forward.

What kinds of role would you like to pursue at the company or in society? Do you have personal projects or dreams?

At the company level, I will do my best as a facilitator so that Krafton, led by Chief Executive Officer Kim Chang-han, can keep growing. Of course, I can also take the lead if necessary. On the social level, my short-term plan is to nurture software engineers through the Software Academy Jungle, but it is too small to be considered a social role. I want to try more things in the long term, but I haven’t made a concrete decision yet.

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