Venture downturn keeps Korean unicorns from acquisitions

South Korean unicorns, or private companies worth $1 billion or more, are increasingly refraining from taking over smaller startups for business expansions, dampening the overall domestic acquisitions market, due to a prolonged local venture capital funding drought.

None of the local unicorns bought other companies last year with the total number of startup acquisition deals nearly halving to 48 from 94 in 2022, according to South Korea-based startup and venture capital tracker The VC on Thursday.

“The financial department turned significantly conservative (on new investments),” said a unicorn official, adding that most major startups have tightened their belts given the sluggish venture capital sector.

“We decided to focus on synergy with previously acquired startups rather than pursuing business expansion by taking over new companies,” the official added.

Domestic unicorns led the growth in the local startup acquisition market in 2020-2022 when ample liquidity fueled the venture capital industry.

The fintech unicorn Viva Republica Inc. took over the majority stake in VCNC, the operator of a ride-hailing service Tada, to foray into the mobility sector in 2021. Kurly Inc., the operator of the grocery delivery platform Market Kurly, bought HeyJoyce, a business management consultancy for women, in 2022.

Bucketplace Co., an operator of the country's largest home interior platform, acquired a home service startup in 2021, while Danggeun Market Inc., the operator of the country’s largest neighborhood marketplace app Karrot, acquired Fest Inc., an event solution startup, in 2022.

NAVER, KAKAO CUT INVESTMENTS

The boom has ended, however, as major IT companies such as Naver Corp. and Kakao Corp. have reduced investments in smaller startups and refrained from takeover deals.

Naver D2 Startup Factory and Kakao Ventures Corp., investment units of the platform giants, injected money into only 18 startups last year, less than a third of 66 cases in 2022.

Jeju Beer Co., a craft beer brewer, dropped a deal to buy a local restaurant chain operator as it failed to pay the balance of 8.1 billion won.

The average value of startup takeover deals tumbled 33.9% to 40 billion ($30 million) on-year, according to The VC. The value was less than a fourth of 170.3 billion in 2021.

Mesh Korea Co., a logistics service provider whose value had reached up to 800 billion won, was sold to a dairy maker hy Co., formerly Korea Yakult, at only 80 billion won last year.

“It was lucky to seek another chance to leap again despite some talks over a bargain sale,” said an official at The VC.

ACQUISITION DEALS SEE DOWNTURN

Some startups are using acquisitions for business restructuring.

Riiid Inc., an artificial intelligence education startup recently took over Qualson, an edtech startup. Riiid appointed Qualson CEO Park Sooyoung as its head while Riiid founder Jang Young-Jun stepped down.

Such a downturn is expected to hurt the overall startup ecosystem, industry sources warned.

“M&A deals are not only doors for exits but also driving forces to create new startups,” said a venture capital industry source, referring to mergers and acquisitions.

“We must find a breakthrough for the market to recover.”


Write to Eun-Yi Ko at koko@hankyung.com
 
Jongwoo Cheon edited this article.