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Creative Economy Needs 'Creative Finance' (December 2, The Korea Times)
- Date : 2013.12.02
- Views : 928
Creative economy needs 'creative finance'
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The Park Geun-hye administration established the development of a “creative economy” as the new model for Korea in the pursuit of sustainable growth leading toward a truly advanced economy.
Though defined in various ways, ranging from the fusion activities of IT into conventional industries and cultural industries to applying existing, casually observable knowledge to produce goods of better quality under sellable packages, one certainty is that a creative economy basically involves the translation of new ideas into commercial products.
The Ministry of Science, ICT and Future Planning cited commercialization of the poisonous needles of bees as an example of creative economic activity.
The needles of bees are known to be an effective remedy for skin problems. One scientifically minded farmer discovered a way to collect poison from bees without killing them and manufacture vaccines for his cattle, thus making a handsome profit.
More such ideas can be found in everyday life. However, major ideas tend to come from laboratories at private and public universities and research centers, by young innovative minds. These new ideas usually lack funding for meaningful commercialization.
A big question then is how to and who will finance the transformation process from ideas to commercial goods. Many finance companies are typically averse to risk and less willing to provide loans just for new ideas unless they are covered by convincing collateral.
Of course, the government may create risk-pooling methods to help finance the commercialization stage from ideas. In Korea, we do have both credit guarantee and technical credit guarantee funds.
While many commercial banks in Korea have transformed themselves into holding companies, they have also started to establish a subsidiary to specialize in providing loans to risk-prone venture start-ups. The Korean government also pushes some state-run financial companies to providing venture financing even with risk premiums.
However, Korea experienced a severe moral hazard phenomenon when it intentionally promoted venture businesses as a means to overcome the Asian financial crisis.
Many so-called venture businessmen took advantage of subsidized and easily accessible venture financing schemes designed by the government’s top-down schemes. Many venture projects turned out to be complete failures, causing a significant amount of assets of the financial institutions involved to become toxic.
In contrast, I was amazed while observing the formation and operation of Silicon Valley’s angel funds, which channel necessary financial resources to creative start-ups.
An electronics engineering professor at Stanford University volunteered to go into early retirement so he could be involved in the actual commercialization of new ideas rather than classroom teaching and university laboratory experiments.
He was joined by the retired CEOs of a medium venture company and an accounting firm to set up an angel fund. Public investors voluntarily put their money into this angel fund after looking at their careers.
Their daily work involves visiting various laboratories that are conducting experiments with new ideas or new startups in the Silicon Valley area. With their expertise, they provide mentoring services, invest as joint venture partners or finance promising start-ups.
Statistics show that there were 258,000 active angel investors in the United States in 2007. Between 2001 and 2003, 300,000 to 600,000 individuals made an angel investment.