2017 Korean tech investment report: 54 startups raised over USD 3M

Here is an annual report of investment trends in the Korean startup space. The report contains data, including international services and investments from Korean VCs, from startups in Korea only. The following timeline is in chronological order.

 

■ Korean startups received a total of USD 574 M, 37% decline from the previous year

The amount of funding Korean startups received is officially tallied at USD 574 million, a number that does not include funding that was not officially announced. This dip represents a 38% decrease in funding year-on-year, as startups received USD 938 million in 2016. A total of 248 individual investments in startups were made in 2017, which is ten fewer than were made the previous year. In 2016, 258 separate investments were made in startups.

In 2016, the amount of funding and number of investments increased from the previous year and reached the highest recorded values ever. These results were different than those that were expected, as investment was expected to be low after the failure of the “Creative Economy” project, a government-backed initiative to support startups.

The causes for the decrease in investment in 2017 are various. The precarious political situation, where the previous South Korean president was dismissed and a new one elected, certainly did not help the investment climate. Plus, the prolonged economic recession continued, making the situation worse.

Many analyses of the startup environment point to government restriction as another reason for the investment downturn.  A regulation called the ‘Preferential Loss Appropriation System’ is often mentioned as an unjust law that blocks cash flow in the venture investment industry.

The ‘Preferential Loss Appropriation System’ stipulates that venture capitalists bear the losses when projects using money from limited partners (LP) incur deficits.

Also, the ‘Monopoly Regulation and Fair Trade Act’ is also obstructing active mergers and acquisitions cases for large corporations. When investment branches or big companies acquire startups, the latter are always considered to be part of the larger corporations. Thus, they are subject to related and enhanced regulations. Regulatory procedures then tend to block additional investments. These situations have been causing difficulties for recently acquired companies. Some startups that are bought by certain big corporations are disallowed from raising funding from other large enterprises. Due to these restrictions, many people support the elongation of an investment grace period from seven to ten years.

Under the current law, holding companies should possess more than 40% of the total stock of their subsidiary companies. Many shareholders in startups are usually individuals, which makes it difficult for large companies to acquire startups. If the large enterprises fail to persuade hundreds of angel investors to sell their shares, they end up pursuing M&A to effectively take over the startups.

■ 54 individual startups raised over USD 3 million in 2017, with Yanolja raising the most money

54 different startups raised over USD 3 million last year, down from the 67 that reached that mark in 2016.

Yanolja, an O2O accommodation platform, raised the largest amount of investment in 2017, bringing in USD 54 million from SkyLake Investment. SkyLake is a leading private equity manager in Korea that is led by former minister of information and communication Daejae Jin, who is also a former executive at Samsung. In December, Yanolja secured USD 19 million from Aju IB Investment. The total amount of funding Yanolja raised in 2017 reached USD 76 million, and the startup’s accumulated amount of funding is over USD 105 million.

Viva Republica, which raised USD 52 million from PayPal in March, was one of the other big players in the industry this past year. Viva Republica operates a money transfer app called ‘Toss’ and is one of the most promising fintech startups. It has expanded rapidly in recent months. Toss now controls 95% of the domestic market share for simple money transfers.

In addition, many startups secured over USD 10 million in funding, including Woowa Bros (USD 33 million), Mesh Korea (USD 23 million), Poolus (USD 21 million), Sendbird (USD 16 million), MyMusicTaste (USD 12 million), Fast Five (USD 12 million), Wadiz (USD 11 million), Lendit(USD 10 million), and Aston (USD 10 million).

 

■ Major M&A cases including Korbit, Remember

Even if there were not many M&A cases over the past year, some small and large mergers and acquisitions took place involving both big corporations and startups.

In September, Nexon announced that it had acquired bitcoin exchange provider Korbit for USD 86 million. Korbit was established by Tony Lyu, the current CEO of Korbit, and Jinhwa Kim, co-founder of the Korea Blockchain Association. It recorded the highest value of any startup M&A case, higher than that of Roc and All, which Kakao acquired for USD 59 million. Nexon acquired Korbit to diversify its business with NXC, Nexon’s holding company. However, the final details have not been revealed.

Another notable M&A case was Naver’s acquisition of Drama & Company in December. Drama & Company, the developer of a name card management app called Remember, raised USD 10 million in funding from Line Plus. Naver then bought Drama & Company to strengthen its overall business. After the acquisition, Drama & Company became a subsidiary of Line Plus and Naver, but Jaeho Choi, CEO of Drama & Company, stayed on in his role.

One more important M&A case involved Quicket, a developer of a secondhand goods transaction service called Bungaejangter. Quicket acquired Sell It, a secondhand goods concierge service, in October. Sell It merged with Quicket and continues to operate independently of Bungaejangter, but Sell It’s corporate infrastructure was dissolved. If Bungaejangter is the core C2C mobile marketplace for secondhand goods, then Sell It handles goods on consignment and direct buying. These two companies, though merged, have different customers and business models.

■ Status of Investments by Naver and Kakao

Naver and Kakao, two leading IT companies in Korea, invested and acquired a large number of startups in 2017. Naver mobilized various funds in order to become more active in the investment market. In 2016, Sung Suk Han, CEO of Naver, stated: “Naver will make USD 470 million in investments in tech and content startups in the next five years.” In fact, Naver made over USD 376 million in funding before the close of the third quarter of 2017, a sum that is already more than half of the target amount.

The 2017 investment keywords for Naver in 2017 were ‘AI’ and ‘Global’. Naver invested USD 132 million in Korelya Capital, an IT investment support organization established by Fleur Pellerin, the previous French minister for small and medium-sized enterprises, innovation, and the digital economy. In September 2016, Naver invested USD 61 million with Line in ‘K-Fund 1’, a European fund controlled by Korelya Capital. Also, Naver acquired the Xerox Research Centre Europe, an AI-specialized research center, for USD 93 million in order to to find promising European startups.

Kakao made investments that focus on linking its business with other Korean startups. One popular example is the funding case of CashNote, a mobile financial service based on KakaoTalk. In 2018, it is expected to raise funds of over USD 1 billion to actively participate in M&A cases overseas.

(Top photo from 699pic.com)


This article, entitled “2017 Korean tech investment report: 54 startups raised over USD 3M”, was written in Korean by Platum, edited by AllTechAsia.

Margot Jung
Margot Jung

Margot Jung is an editor at Platum and she writes for AllTechKorea. She not only covers stories on startups, but is also a member of a startup as well. She writes about startup news and IT trends in Korea and China. She does her best to deliver information that can be helpful to entrepreneurs, and writes easy to read articles.

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