Seoul, The Hottest Startup Hub In Asia? A look into Korea’s tech infrastructure and Startup Ecosystem January, 2015 Nathan Millard @Nathan_mill S It wasn’t always like this… Gangnam 1950s Gangnam 2015 Understanding Korea • 25.6M in Seoul Metropolitan Area (1/2 of population) • Home of Samsung, LG, Hyundai, Hallyu • Hard working (10-12 hours per day) • Tech-savvy & Engaged • Homogenous & Impressionable • Trend setters • Pop culture, tech, fashion Korea’s Economic Landscape • $25,997 per capital GDP as of 2013 • Asia’s third largest e-commerce market (12%+ annual growth since 2006) • Increasingly vibrant exit market (M&A and IPO) • Engaged consumer base, eager to spend through tech Korean Mobile Market Overview • Fastest mobile broadband (excellent for content consumption) • High smartphone penetration: 80% as of September.2014 • High Android-powered smartphone penetration:90% of smartphone user • 15 % for web-surfing & 85% for using mobile apps ( high usage in mobile-app services) • Kakao games platform boosting Google Play • Currently, no serious challenge against Kakao Talk IPhone Large (Korean) Corporations Dominate = 85% M/S = 14% M/S Samsung & LG hold 80% m/s while Apple 20% in device market 3 big Search Engine companies = 15% M/S 92 % m/s for Kakaotalk & 4% for LINE in messenger service (as of Sep.2014) App Opportunity in Korea •#3 in the world for downloads •#3 in the world for revenue •25%+ online for 8+ hours/day •$100M USD monthly app revenue <Whole population engaged> Gaming in Korea <Clash of Clans: #1 ranked in Google & Apple app store> <Anipang: First Kakao Game> • First country to have professional PC gamers • PC rooms used to dominate free time (now mobile) • Highly experienced gaming market place • Exceptionally high consumer expectations • Infrastructure supports ‘heavy’ games and apps • 80%-90% of app revenue from games Koreans as App Consumers • Highly trend-focused, social, and fickle • 90% of top games released in previous month • Local apps / services often triumph over imports • Large marketing budgets are [now] required for engagement • Localization can not be stressed enough Mobile Payments Situation • World leader in mobile payments • Extensive NFC enabled devices • SK Planet’s ‘T Cash’ • Used for 54% of in-app purchases • Connected devices offer future opportunity • Samsung aims to be IoT leader • Korea is a great test market / gateway to Asia • Bitcoin emerging (Korbit, Coinplug, CoinOne) Korean Unicorn 14 13 Unit: $Billions 12 11 10 9 8 “10 companies belong to what we call the “Korean Unicorn Club” (by our definition, Korean software companies valued at over $1 billion by public or private market investors)” – John Nahm, Strong Ventures (9/11/2014) 7 6 5 4 3 2 1 0 Coupang US Population: 318 million Com2US USGmarket GDP: $16,8 trillion Daum | |NC Soft S. Korea Population: 50 million (15.7% of US) Smile Gate Naver(7.8% of Kakao LINE S.Nexon Korea GDP: $1,3 trillion US) All Rights Reserved StartupEcosystem Ecosystem Startup Accelerators Startup Ecosystem Ecosystem Startup Investors & VCs • 130 Angels (around 50 active) • Seed Investment: KOISRA • Series A: Capstone, CCVC, Venture Port, Formation 8, K Cube Ventures, Strong Ventures, Smilegate Investment • Series B: Altos Ventures, CyberAgent Ventures, Softbank Ventures, Qualcomm Ventures, IMM Investment, NeoPlux, Stonebridge Capital, DSC Investment, SL Investment Startup Startup Ecosystem Ecosystem Co-Working Spaces Startup Startup Ecosystem Ecosystem Government • $5B USD pledged for building “creative economy” • Legitimizing entrepreneurship • Innovation centers in major cities • TIPS program (1:5 & 1:7 matching) Startup Startup Ecosystem Ecosystem Content Heritage • Hanllyu (K-pop, Dramas, Movies) • On mobile and Global • Gaming: Devsisters, Smilegate, NCSoft, Nexon, WeMadeEntertainment • Online content distribution: Viki, DramaFever Startup Startup Ecosystem Ecosystem Reasons for Growth • IT infra that supports IT development • Quality engineers, with strong work ethic • Greater understanding of risk • Entrepreneurs with global vision and bigger, better quality ideas • Mentor networks and Angel investors • Government support (money, PR, education, economic diversity) • Exchange of students & ideas (Korea – West) • Economic conditions that can support entrepreneurship Startup Startup Ecosystem Ecosystem Startups Entrepreneurship in Korea has never been this hot. Korean founders are passionate, talented and building companies that are having a real impact in the region, and across the world. While there is much still to achieve, the future looks very bright. • • • Highest number of startups per capita in the world • China has highest number of startups of any country • USA has ‘the best’ startups Mostly consumer facing mobile services • 80% of the country own smartphone & Per capita, 280$ annual mobile spend in Korea vs. 105$ in U.S • Fastest broadband service: 25 Mbps in Korea vs. 4.5Mbps global average Gaming, E-commerce, social-powered platforms, Contents Hottest Hottest Startups Startups ProblemsProblems with M&A in Asia • Not enough M&A (around 98% of exit in Korea is through IPO. Figure is similar in r est of Asia, except China where is around 50%-50%) • Large Asian corporations don’t acquire enough startups in Asia. (except China) • Japanese companies are most active, but mostly high value, rather than volume. E xamples are Viki and Viber. (only a small number of startups / VCs benefit) • US companies don’t know how to engage with Asian M&A opportunities. Also US c ompanies are also more focused on technology, rather than users / sales. (Asian st artups are more service than tech driven) • In Asia, M&A is generally focused around users / revenue. • There is general disconnect between what US companies are looking for and what Asian companies can provide. M&Aand & IPO M&A IPO d <More inbound, cautious of outbound deal> Why is there NOT a healthy M&A culture in -Why is M&A so weak in Korea? d Samsung & LG – want to do things internally, because they think it’s cheaper / easier / quicker (they were wrong). Samsung is now doing M&A, but mostly overseas. Lack insight to see the future (unlike like Softbank) Struggle to deal with post-merger integration (doesn’t work due to company culture) . • Inbound merger in H1 2014 reached 11.1bn, x12times from H1 2013. But 51% drop in outbound deal(1.4bn) compared to H1 2013 (2.9bn). • Inbound mergers were mostly big corporate mergers. • Korean companies are getting cautious in acquisition with new companies. • Survey among 317 CEOs (Korean/Chinese/Japanese) on willingness on M&A plans shows: only 5% of korean CEOs willing new M&A while 34% of jananese strongly willing to new M&A , and 53 % of them seeking for outbound M&A. Today’s Trends Today’s Trend • Maturing platform situation (dominated by 1 – 2 players) • Kakao–Daum merger could create super-company? • Global competition (hardware, software, services) • Opportunities in IoT & smart home • Korean tech startups & SMEs more determined globally • Korean consumers will lead global mobile trends • Closer relationship with China Keep in Touch nathan@g3partners.asia @Nathan_mill +82 (0)10 8723 7702 Thank You!! S