Last December, the South Korean bio venture fund Aprogen Pharmaceuticals became Korea’s 11th unicorn, according to tech market tracker CB Insights.
The firm that specialises in antibody engineering and recombinant protein engineering received US$16.7 million investment earlier in the year from venture capital firm Lindeman Asia Investment, helping take its valuation over US$1 billion.
The rise of Aprogen temporarily made Korea home to the fifth-largest number of unicorn startups in the world, though Berlin-based delivery company Delivery Hero’s blockbuster US$4 billion purchase of Korean delivery service Baemin in December 2019 reduced Korea’s unicorn total to 10.
This still places Korea in sixth place behind the US with 210, China with 102, the UK with 22, India with 18 and Germany with 11.
The growing number of Korean unicorns — and the blossoming of Korea’s venture ecosystem the trend represents — comes as nations around the world look increasingly toward startups to provide fresh growth engines in the innovation economy.
For investors, the emergence of Korea’s unicorns demonstrates not only that Korea’s has become one of the world’s premier startup ecosystems, but also that excellent investment opportunities for late-stage investors exist if you’re willing and have the local connections to make the plunge.
A growing herd, now growing faster
Not only has the number of Korean unicorns increased but over time they are also emerging at a faster rate.
Korea’s first two unicorns, e-commerce giant Coupang and mobile business platform Yello Mobile, emerged in 2014. The next unicorn, L&P Cosmetic, did not emerge until 2017. In 2018, three companies joined the herd: game developer Krafton, fintech startup Viva Republica and Woowa Brothers, the operators of the aforementioned food delivery service Baemin.
Also Read: Why the Singapore tech scene is a big draw for Korean startups
In 2019, no fewer than five Korean startups attained unicorn status. Motel booking service Yanolja and e-commerce platform WeMakePrice became Korea’s seventh and eighth unicorns in February and April, respectively. Cosmetics firm GP Club became number nine in June.
In November, the online fashion platform Musinsa became Korea’s 10th unicorn on the back of a KRW200 billion (US$165 million) investment from a consortium of global venture investors. And then Aprogren became number 11 in December.
E-commerce rules
The growing number of unicorns — and the nature of those unicorns — demonstrates much about Korea’s fast-developing startup ecosystem.
E-commerce services such as Coupang and WeMakePrice account for over half of Korea’s unicorns. This can be attributed to the rapid growth of the country’s market for online and mobile shopping and delivery apps.
That market has drawn record levels of venture investment, beginning with Softbank’s US$3 billion investments in Coupang in 2015 and 2018. Even the conservative National Pension Service felt the market attractive enough to invest KRW350 billion (US$290 million) in SK Planet’s online shopping platform 11Street.
Some of Korea’s unicorns have attracted significant investment by targeting overseas markets from the start. Game developer Krafton is perhaps the best example.
The company unveiled its smash hit PlayerUnknown’s Battlegrounds on the global game platform Steam, where it met with commercial success and critical acclaim. As a result, the company’s value skyrocketed from KRW920 billion (US$762 million) to KRW1.5 trillion (US$1.2 billion).
L&P Cosmetics sells its popular facial mask Mediheal in 26 counties, including China, Japan, Singapore, the UK, Italy, Canada, Australia, and Brazil. The overseas market accounts for over 60 per cent of the company’s sales. This was enough to attract the attention of Credit Suisse, which invested KRW40 billion (US$33 million) in the company in November 2018, propelling it to a KRW1.2 trillion (US$995 million) valuation.
The case of fintech company Viva Republica, the operator of the mobile remittance service Toss, shows another path to unicorn status: reshaping a traditional industry. Toss revolutionised Korea’s cumbersome online payments system with a Venmo-style payments engine.
Now the company offers a wide range of thirty financial services from a single mobile app that pays ruthless attention to user experience, in stark contrast to the experience Koreans had dealing with banks.
That kind of innovation drew the notice of US venture capital firms Kleiner Perkins and Ribbit Capital, which invested US$80 million in Viva Republica in December 2018, helping power them to unicorn status.
Government funds playing a part
Perhaps surprisingly, government policy has played a role in the emergence of Korea’s unicorns. Since the launch of the Moon Jae-in administration in 2017, the government has invested KRW800 billion (US$663 million) in its Fund of Funds, to improve the venture investment environment.
It allows the government to cultivate Korea’s venture capital sector by investing in funds rather than investing directly in companies themselves. As of July 2019, seven of Korea’s then-nine unicorns had received funding from the government’s fund-of-funds.
The example of Yanolja, Korea’s most popular hotel booking service, is illustrative. Yanolja became Korea’s eighth unicorn last year after a KRW50 billion (US$41 million) investment from Singapore-based booking platform Agoda.
Prior to that, however, the company received KRW8 billion (US$6.6 million) in investment government fund-of-funds vehicles in 2016 and 2018.
This fueled the company’s aggressive expansion, including acquisitions of hotel booking service Hotel Now in 2016 and leisure activity platform LeisureQ in 2018.
WeMakePrice, too, received an injection of KRW10 billion (US$8.2 million) in 2015, which is used to hire 1,000 new employees and improve its price competitiveness. And Krafton credits sizable investment from the fund-of-funds for giving it the breathing space to develop PlayerUnknown’s Battlegrounds.
An official from the company told the South Korean daily Dong-A Ilbo that game companies make little money during the long game development period and that fund-of-funds investment provided the momentum for future growth.
Success has bred success, too. Though the fund-of-funds has proven critical in early funding rounds, international investors have driven the late-stage investment that has produced all but one of Korea’s 10 unicorns.
Until recently, however, global venture firms had few reference points that could convince them to take the plunge into the Korean market.
The success of e-commerce giant Coupang — the Amazon of Korea — proved that Korean companies could grow fast even without sizable profits or an IPO.
The subsequent success of other Korean unicorns — let alone the US$4 billion dollar acquisition of Baemin by Delivery Hero — has further emboldened international investors by proving that lucrative opportunities exist in Korea.
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