Korea`s entrepreneurs garner global validation as local ‘startup’ valuations soar into the billions
Forbes, July 18, 2014
This article was co-authored by Nathan Millard, Global Director of beSUCCESS.
As little as five years ago Korea’s startup scene was undistinguished, but now the nation has taken an important step towards establishing itself as a key technology hub in the Asia Pacific region and an essential partner for global investors and tech businesses. Two young Korean startups have gained the notice of the global financial community by completing large transactions with valuations that exceed a billion dollars.
Kakao Corp, which is the company behind the KakaoTalk mobile messenger service with over 150 million users, recently completed a $4 billion merger with Daum Communications. Coupang, a Korean ecommerce Company that has been experiencing exponential growth, secured a $100 million USD funding round with a valuation that topped $1 billion. These events represent an inflection point in the development of a domestic ecosystem that will have a profound impact on Korean entrepreneurship.
One of the striking observations about both companies is the global nature of their company culture and services. This is in stark contrast to the majority of Korean startups, who are often restricted to Korea in terms of vision, capability, and culture. Kakao and Coupang have a common link in Eric Kim, Co-Founder and Managing Partner at Goodwater Capital. As a board observer to Kakao and board director at Coupang, Mr. Kim is praised by entrepreneurs as being able to contribute deep connections to the U.S. venture ecosystem and rich experiences in building global businesses. These connections have been instrumental in the success of both companies.
Both companies have also forgone typically Korean hierarchical business structures in favor of empowering employees to build solutions for users with the management team, rather than for it. Both CEOs have also spent considerable time overseas. Beyond simply learning English, being immersed in cosmopolitan business environments has helped them forge connections with international users and build agile businesses that have enjoyed explosive and sustained growth.
Coupang was founded in 2010 by Bom Kim, a Korean-born entrepreneur. Mr. Kim raised $4 million for his first company while still in college in the U.S. but it ultimately failed. For many Koreans this would have been a debilitating event but he was undeterred. He subsequently dropped out of Harvard Business School to start Coupang, which was essentially a Groupon clone, and rapidly evolved it into a comprehensive ecommerce site that took Korea by storm. The company achieved $650M revenue in its second year of business and continues to scale.
While Coupang may think global and have deep cultural roots in the U.S. venture community, building local has been one of Coupang’s key success factors. CEO Bom Kim’s experience of founding two companies in the US seems pivotal to later success in Korea. Working in the US startup environment he was exposed to agile business methodologies that have helped him to stay ahead of the curve in his home nation.
In talking with Bom Kim, and observing the way his company operates, one gets an unambiguous message. He aims to truly empower his employees, encouraging them to build something customers love. The product developers envision a final result, and then figure out how to get there, rather than following a set design with a pre-defined development process. This is very different from the traditional methods employed by companies like Samsung where developers are often given very little room to deviate from a master plan. Until recently, engineering at Samsung was often treated like a blue-collar job, rather than being recognized as a core business activity and source of innovation which is typical at companies such as Apple and Google.
Kakao Corp has also adopted practices that are common-place among U.S. start-ups but often alien in its native Korea. In a country where adherence to hierarchy is the norm for business interaction, Kakao has encouraged its employees to work together as equals on a team, even suggesting they each adopt western first names for communication in the office. This small step towards breaking down barriers for internal communication is certainly in part responsible for the company’s ability to react with speed to market demands and garner a high number of global users.
“A flat organization structure allows free flow of creative ideas as well as faster decision making, which is critical in the mobile industry today,” Lee explained. He also pointed to the company’s user oriented approach as being the key to explosive and sustained growth, “It’s all about listening to our users and really understanding what they want. Only when we know what drives them are we able to develop our services according to their needs. This has helped us develop quickly, grow at fast pace and expand into new markets.”
More significant deals are on the horizon signaling the coming of age of Korean startups. Flitto, a crowd-sourced translation platform, today announced a $3 million funding round with participation by U.S. venture firm, Accel Partners and IDG China Growth Fund. Baedal Minjeok, a Korean food delivery service recently raised $10M to expand across Asia. And Memebox, a beauty curation service that is capitalizing on the burgeoning popularity of Korean cosmetics, became the first Korean startup to enter the Y Combinator startup accelerator, and is on course for phenomenal revenue figures in their first year of business in the U.S.
So what brought about this dramatic and rapid change in fortunes for Korean startups?
A new breed of Korean entrepreneurs are embracing risk and while they may initially be tackling local problems, they are thinking about how their solutions can be extended onto the global stage. An exchange of highly educated individuals between East and West has served to change perceptions of the ideal career, with larger numbers of young Koreans veering away from the traditional route into a safe and predictable corporate career.
Korea has also seen the rapid development of a robust infrastructure to support entrepreneurship that did not exist a few years ago. A number of global-focused accelerators, such as Sparklabs, K-Startup, and Future Play have sprung up in Seoul. D Camp, operated by The Banks Foundation for Young Entrepreneurs, opened around one year ago and in the last few months Maru 180 was established by the Asan Nanum Foundation, a non-profit organization financed by the Hyundai Group. Daum, Korea’s second largest online portal, and SK Telecom also have their own startup accelerators, and it is rumored that Samsung are preparing to get more involved with Korean startups, through their Open Innovation Centre.
Support from the government, which is pushing for the development of a “Creative Economy” as a national goal, has also helped to legitimize the choice of entrepreneurship as a career path for highly-educated business and engineering graduates. Over the next three years the government will disburse $3.7 billion to support entrepreneurship and the creative industries. The administration has also partnered with ten early stage tech investors, offering to match funds to catalyze startup-driven economic activity. It is expected that 50 startups will receive funding of around $600 thousand under this program this year.
In one of many other government funded initiatives, KISA, an agency tasked with supporting entrepreneurship, has thrown its support behind beGlobal, a U.S. conference that aims to connect Korean startups with resources in Silicon Valley. The organizers, beSuccess, also cover the local startup scene through their English language blog. DEV Korea has recently entered into a partnership with Innopolis, Korea’s renowned global innovation cluster comprised of major science and technology research centers, to help identify companies under their umbrella that are candidates for global commercialization and make initial investments. Note: The authors of this article are affiliated with beSuccess and DEV Korea.