5 investors explain their mantra for South Korean startups

South Korea’s economy The model has rested for decades on export-oriented manufacturing operated by family-owned corporate giants. A 2015 report from McKinsey he described how the country would need small businesses to drive an innovative model in preparation for the next phase of economic growth. “The key to fostering such innovation is a vibrant startup community. … Currently, the Korean startup community falls far short of this ideal,” the report says.

South Korean conglomerates such as Samsung, LG, and Hyundai still play an important role in Korea’s core economic growth; most of them, once focused on manufacturing, are now technology-driven companies.

Along with the Big Tech giants in South Korea, the country’s startup ecosystem has grown tremendously compared to 2014, as have startups in other Asian countries such as China, India, and those in Southeast Asia.

In 2014, there were were just 10 unicorns, including Coupang, Naver, Kakao, Line (which has moved to Japan), and game companies like Nexon and NC Soft, among 29,561 startups. As of 2022, Korea I had 22 unicornswith a valuation of 1 trillion won (approximately $744 million), up from 18 unicorns in 2021. It may not sound like a huge jump from 2014, but the increase in the number of unicorns is a testament to the hard work that companies are putting in. Korean startups. .

After the recent pandemic fueled a worldwide startup boom, startup valuations in South Korea unrealistically skyrocketed, just as they did globally. Jumping to the present, the funding landscape for start-ups has narrowed and valuations have fallen around the world amid uncertain macroeconomic conditions. Venture financing in Asia in the first quarter of 2023 decreased 33% from the fourth quarter of 2023 and 57% from the first quarter of 2022, according to a Crunchbase report.

We spoke to select investors investing in the South Korean market to hear their predictions for 2023, their investment strategy, which sectors excite them and more.

All of the investors we spoke to said there is little change to their investment strategies, but due diligence approval by committees has become rigorous.

“The days of ‘swiping right’ on a deal are long gone, and the required level of due diligence has also returned to historical norms, taking three to four months instead of three to four days,” said Yeemin Chung, BRV CEO. Capital management.

Investors are now advising start-up founders and executives to prioritize profitability over growth, extend their path and prepare to stay nimble amid fears of a possible recession.

And startups are now seeing a drop in valuations compared to the previous two years. Still, in a way, it’s healthy as “people approach it more rationally,” according to Han Kim, a general partner at Alots Ventures.

“I think the current environment may seem a bit harsh for entrepreneurs, but in a sense, you are doing founders a favor who can realistically chart their growth path,” said Eunse Lee, founder and managing partner of 541. Venture.

We spoke with:

  • Han Kim, General Partner, Altos Ventures
  • Tim Chae, Managing Partner, Global 500
  • JP Lee, CEO and Managing Partner, SoftBank Ventures Asia
  • Yeemin Chung, Managing Director, BRV Capital Management
  • Eunse Lee, founder and CEO of 541 Venture.

(Editor’s Note: The following surveys have been edited for length and clarity. These responses are strictly limited to South Korea and do not cover all of Asia.)

Han Kim, General Partner, Altos Ventures

We’re seeing a significant drop in VC funding in the first quarter of Asia this year. How has your VC investment strategy changed along with market condition?

Our strategy has not changed much. We’ve been investing more in our existing businesses since the second half of last year, so there are more investment dollars in total. It is slightly different from other investors. I think it’s because some funds don’t invest much. [these days]. In a way, there are more opportunities for us to invest more. (But those are not new start-ups but existing companies in our portfolio.) We typically invest between 1 billion and 10 billion won ($750,000 and $7.5 million) in startups, and sometimes even invest up to 100 billion won ($75.5 million) in portfolios existing.

What caused the lowest funding in Asia since 2021? And do you think VC funding will continue to decline this year? What are your prospects for funding volumes in Asia in 2023 and 2024?

If you see the data, includes China. I think that’s been a little bit affected by China. Chinese venture capitalists have faced some regulations on large companies. [investment], and now the US also regulates investment in Chinese companies. There are many checklists. [for investment in China]. It’s my guess, but for this year at least, I think that until the US-China tensions subside or are resolved, it won’t be easy to recover from this challenging atmosphere.

How is the investment trend in South Korea different from other regions such as the United States and Europe?

Now the trend is profitability before growth. I think this trend is becoming more important in South Korea. The US used to be growth over return but now it has changed to profit over growth but the US has more leeway than Korea. In other words, US investors have more patience than South Korean investors.