Softbank Ventures Korea is one of the most established and successful Venture Capital companies in Korea. Outstanding successes include Sundaytoz and Sunnyloft (acquired by Kakao), and there are dozens of other portfolio companies that are rising stars in the Korean scene.
Softbank Ventures is a 100% subsidiary of Softbank Corp. in Japan and manages a $250M fund. The fund is based in Korea, but they take care of investments across Asia and in the US. There are plans to expand more rapidly into new markets at this time. While stage agnostic, the company’s investments tend to be follow-up rounds in the A – B stage.
Why Would a Japanese VC Headquarter In Seoul?
VC money from Softbank and other Japanese VCs, like Global Brain and CyberAgent Ventures has been following the startup activity. And in the last five to ten years that activity has not been in Tokyo. According to Softbank Executive Director, Ryan Lee, “Korean entrepreneurs are more active and want to be more global and there are very few notable success stories out of Japan over the last few years.”
Although Japanese startups haven’t been hot recently, Japanese companies have powerful networks and extensive experience across Asia. Many Korean companies do not, and that is a key area where Softbank and other Japanese VCs can add value. The Japanese financial markets are also more mature than in Korea, and have more funding available, particularly at the higher end.
Since 2009 Softbank Ventures Korea has had some good successes, and there have been a few large exits. Daniel Shin, for example, sold Ticket Monster to Living Social in one of the largest recent Korean exits. For Korean (wannabe) entrepreneurs suffering from corporate fatigue there was a feeling of ‘if he can do it, so can I.’ This, combined with the relative ease of raising startup capital has resulted in a rise in the number of startups founded annually in Seoul.
Quantity is Up, What about Quality?
Lee believes that overall quality is increasing, and this has been confirmed by other long-term investors in Korea, such as Han Kim from Altos Ventures. However, due to the ease of setting up a company, there is a fragmentation of talent, making it more difficult to pick out the great startups from the not-so-great. Lee explained that there needs to be a minimum value of talent in each startup for the investment to balance the risk. “These days it is so easy to found a startup that there is a me too situation, which dilutes the pool,” he said.
Is there too much money in Korea?
These days in Korea startups are flooded with money, and Ryan believes that we are nearing a bubble situation, but feels investors are more reserved than before the crash in 2001 and 2008. He also described the bubble as a necessary evil. “It encourages people to take part,” he noted. And that is a great thing. Even if entrepreneurs fail on their first attempt, they have learned lessons that can dramatically increase the chances of success second time round. And in Korea now there are more young people involved in startups than ever before, all gaining their ‘Startup MBA.’
Still Korean Successes Overseas Are Rare
There are now a number of Korean startups that are doing well overseas, but frightfully few are doing great. While Samsung and Hyundai spent around ten years and billions of dollars to go global, startups must find a faster an easier way. A lack of local knowledge is one of the major drawbacks. But this process can be ‘hacked,’ and it starts with finding ways to rapidly gain local knowledge. To achieve this startups must hire the right people and forge the right partners overseas from day one. Hiring local foreigners or Korean Americans can also help to quickly fill skills gaps and enhance the company’s global knowledge levels.
Local knowledge is particularly important for Korean startups, which are predominantly service-based. Ultimately there should be more Korean startups which have a product at the core, rather than a business model or market knowledge. If technology is the key factor for success local knowledge and marketing become less important. Success in gaming is a great example of this from Korea. But for now, hacking the localization process is a key factor for success.
Comparisons with Israel?
Lee believed that Israeli startup success can be mainly attributed to two points. Firstly is the strength of their global Human networks. Through these, Israelis know about their competition. For example, Israelis in banking and corporate development roles in the US help to connect Israeli startups to their buyers. Korean startups often lack these high level connections. Secondly, Korea is still lacking great entrepreneurial success stories! In Israel after the huge ICQ acquisition, there was a wave of entrepreneurial spirit. Korea is yet to see this happen, though this year’s announcements from Kakao and Coupang certainly help.
