VCs in Korea shell out in search of next unicorns

2021 has been a heyday for Korea’s startup ecosystem – especially for the VCs that invest in it.

In the first three quarters of this year, startups in Korea received a total of 5.3 trillion won ($4.4 billion) from the country’s venture capital firms, a whopping 82% jump from 2.9 trillion won in the same period of 2020. 

The accumulated investment funneled into startups from VCs through the end of September is even higher than the last year’s total investment of 4.3 trillion won. 


PROFITS GROW WITH INCREASED NUMBER OF STARTUPS 

The Korean Venture Capital Association (KVCA) said there were 268 newly formed venture funds in the first three quarters of this year, up from last year’s total of 206. 

In the same period, 24 new VCs registered with the association to reach a total of 184. That is the sharpest jump in the last five years in terms of registered VCs. 

Based on data compiled by the Ministry of SMEs and Startups, Zigbang, Dunamu Inc., Kurly Inc. and Daangn Market Inc. all reached the ranks of unicorn this year. 

The ministry said there are roughly 15 homegrown unicorns, citing CB Insight and industry insiders.

In particular, Bucketplace Co. Ltd., operator of house decorating app and website, Oasis Corp., operator of early morning fresh produce delivery app Oasis Market, and game developer NPIXEL Co., were each valued at over 1 trillion won during their funding rounds. 

This is a notable uptick from 2017 when there were only three unicorns in Korea. Experts say the upward trend is expected to continue well into next year.

Flush with funds, VCs are determined to find the next unicorns. 

There are 357 prospective unicorns with valuations between 100 billion and 1 trillion won at present, a triple jump from 115 in 2017. For example, Mesh Korea Co. Ltd., operator of logistics platform VROONG, is in the midst of raising at least 100 billion won. 

VENTURE CAPITALS RAKE IN PROFITS

Homegrown unicorns have paved the way for VCs to collect their return on investment with successful IPOs and M&As. Naturally, VCs have embarked on follow-up investments. 

Some call it the “redistribution of wealth” in the startup industry. 

Back in March, e-commerce giant Coupang made its market debut on the New York Stock Exchange through an IPO. The company’s shares began trading at $63.50, giving Coupang a market cap of $102.2 billion. 

Earlier this year, in February the operator of dating app Tinder, Match Group, acquired Seoul-based Hyperconnect for $1.7 billion in cash and stocks.

In August, video game developer Krafton Inc. debuted on Korea's stock market in what was one of the largest IPOs of the year.

On the back of these unicorns, many VCs enjoyed a profitable year as well. 

KNET Venture Capital Co. Ltd., an early stage investor of KRAFTON Inc. with its injection of 9.9 billion won, saw its equity value snowball to more than 1 trillion won. IMM Investment Corp., Altos Ventures Management, Inc., and AJU IB Investment Co. all saw their returns on investment jump dozens of times.

Venture capital firms that invested in fintech Dunamu recorded more than 1,000 percent returns on investment. The operator of Korea’s largest cryptocurrency exchange Upbit is considered a decacorn, a private company valued at over $10 billion. 

CHALLENGES REMAIN

Industry insiders say 2021 was chock full of startups with brilliant ideas. 

Companies that addressed everyday difficulties of users, as Bucketplace did with home decorating during the pandemic, saw exponential growth. Other star players include e-commerce platforms that target a specific demographic such as ABLY Corp., Inc., or those that focus on selling primarily high-end items like Trenbe. 

These new attempts, however, often face resistance from existing businesses and regulatory constraints. 

Law&Company, which released a legal counseling app dubbed LawTalk, was sued by the Korean Bar Association for allegedly serving as an agent to hire attorneys; while the operator also sued the association after the KBA decided to ban its members from joining the platform. 

Investors are worried another so-called future unicorn Musicow, Inc. could be subject to investigation by The Financial Supervisory Service due to its unprecedented business model of selling music copyrights in parts. 

Looking at the bigger picture, the National Assembly will discuss a new regulation aimed at tighter controls over online platforms in the new year. All eyes are on whether Seoul’s attempts will dampen entrepreneurial spirits or work to prevent monopolies.

Write to Kim Jong-Woo at jongwoo@hankyung.com
Jee Abbey Lee edited this article.