Profit matters for survival of startups amid investment drought

As venture capitalists tighten their purse strings amid looming recession fears, only startups with killer products that generate profits are well-placed to survive a big funding freeze, and South Korean startups are no exception.

According to Korea’s Ministry of SMEs and Startups, investments from venture capitalists in the last three months of 2022 contracted 43.9% from the same period a year earlier, leading an increasing number of startups without profit-making business models to shut down despite massive investments.

Media startup Dotspace Co. was bankrupt in June last year, followed by a tsunami of startup closures including beauty salon and fitness center booking app developer Lific, mobile data analysis startup Userhabit, and fashion platform Hiphoper due to cash deprivation.

Vogoplay, the operator of live e-commerce platform Vogo, also shuttered its business despite 230 billion won in gross merchandise value (GMV). It logged 52.6 billion won ($41.7 million) in deficit after aggressive expansion.

CASHWALK, ALARMY, KONNY BABY CARRIER

But Delight Room Co., Nudge Healthcare and Konny by Erin have avoided the hit from the investment drought thanks to their popular apps and products.

Nudge Healthcare, the developer of Cash Walk app that pays users to walk, on Monday announced that its operating profit for 2022 was estimated at 9 billion won on a revenue of 79 billion won, up 38.8% from the previous year.

Since its inception in 2016, it has never received funds from outside investors after it succeeded in locking in users immediately after its popular walking-to-earn money app hit the market. Since then, the company has stayed in the black.

Delight Room behind global No. 1 alarm application Alarmy raked in 11 billion won in operating profit last year on sales of 19.2 billion won, boasting a whopping 57% in operating profit margin. Operating profit nearly doubled from the previous year while sales climbed 50%.

Founded in 2012, the company has focused more on enhancing the competitiveness of its product to attract more users than investors, said its founder and chief executive officer (CEO) Shin Jae-myung.

It has been frugal in spending money on marketing to maintain its return on investment (ROI) at healthy levels, while seeking to up ad revenue that amounted to 13 billion won last year, accounting for nearly 70% of its total sales.   

Konny by Erin that makes and sells Konny Baby Carrier and other baby products actively uses social network services (SNS) to promote its products worldwide to restrain from aggressive marketing that needs funds from outside investors. Its baby carriers have sold more than 1 million across 70 countries.  

Vinu Labs Inc. has not relied on venture capitalists or angel investors to develop Everytime, a must have app among Korean college students to manage their campus activities and lecture schedules. Still, it has managed to double revenue every year since 2019 with its own platform ads and product sale.

PROFIT MATTERS

Amid the prolonged cash crunch, only companies making profits from selling their products can survive.

Venture capitalists also focus more on qualitative growth than quantitative expansion of their beneficiaries.

Danggeun Market Inc. recently launched a new ad product for local companies. Mathpresso has introduced a new tutoring service under Quanda brand with artificial intelligence (AI)-powered study platform.

Proptech company Zigbang is seeking to improve profitability with its new Internet of Things (IoT) technology.

Write to Eun-Yi Ko at koko@hankyung.com
Sookyung Seo edited this article.