More restrictive digital regulations in South Korea could reduce startup formation by 8 percent, equivalent to 130 fewer startups per year, and cut venture capital (VC) investment by 10 percent, or ₩1.3 trillion ($910 million) less annually.
A study conducted by by Oxford Economics and commissioned by Digital Prosperity Asia (DPA) revealed the data, DPA said in a statement on Wednesday. The strict rules can also lead to 12,000 fewer startup jobs from 2026 to 2035, the study showed.
Conversely, a shift toward more enabling digital policies could increase startup formation by 15 percent, equivalent to 240 more startups per year, and raise VC investment by almost 20 percent, or an additional ₩2.4 trillion annually, supporting approximately 21,000 more startup jobs in 2035.
The study, which surveyed startups, venture capitalists, and incubators in South Korea, finds that compliance with digital regulations has become a structural cost for many startups. As many as 86 percent of South Korean startups report operational constraints from digital regulations, with 24 percent describing the impact as major or severe.
More than three-quarters allocate more than 5 percent of operating costs to compliance, and among these, 44 percent devote more than 15 percent of operating costs to compliance. About 79 percent have reorganized their operations in response to current digital regulations.
Compliance pressures are also affecting innovation. Seventy-seven percent of startups report that digital regulations have impacted their innovation activity, and 58 percent say financial resources are being diverted from research and development toward compliance. Forty-six percent report delays in product development or longer time-to-market, rising to 62 percent among startups operating for one to two years.
On investment, half of startups say digital regulations increase uncertainty around returns, making it harder to raise capital. About 58 percent of VCs say regulations make investment returns more uncertain. If digital regulations become more stringent, the share of startups expecting investment to increase falls from 43 percent to 31 percent, and half of VCs say they would reduce exposure to higher-risk startups if regulations tighten.
Henry Worthington, Managing Director of Economic Consulting at Oxford Economics, said regulatory design is becoming a key determinant of future growth for South Korea’s startup ecosystem. The economic modelling shows enabling regulation could drive greater startup formation, attract more investment, and support job creation over the coming decade, the executive added.
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