S.Korean startups, VC seek money, business opportunities in Japan

South Korean startups and venture capitalists battered by chilled investor sentiment amid rising interest rates and slowing economic growth at home are looking for money and business opportunities in Japan where investments in new industries has increased with government support.

Korean-Japanese investors are set to launch a venture fund, while a South Korean venture capitalist also plans to establish a fund in Japan next month, providing a lifeline for South Korean startups.

The Jeju Center for Creative Economy & Innovation, a public startup accelerator on the South Korean resort island, agreed to establish a venture fund of 1 billion yen ($6.7 million) with Japanese management consulting firm Seventh Sense and investment company Seventh Star Partners, according to venture capital industry sources in Seoul on Friday.

The three parties are poised to spend the fund mainly on Jeju-based startups, which aim to make inroads into Japan. The limited partners (LPs) of the fund are firms led by descendants of Korean Japanese, mostly from the island.

SHINHAN VENTURE INVESTMENT

Shinhan Venture Investment Co., a wholly owned subsidiary of South Korea’s Shinhan Financial Group, is scheduled to decide on a fund of 50 billion won ($37.5 million) in Japan next month to be jointly managed by Japanese venture capitalist Global Brain.

Shinhan Venture and Global Brain plan to spend 70% of the fund on promising startups in the country and the rest on South Korean companies, which have businesses there.

Such funds came as Japan unveiled a five-year plan to foster startups and accelerate digital transformation for each industry through cooperation in late 2022. The government announced that it plans to increase venture investments to 10 trillion yen with aims to create 100,000 startups and ramp up the number of unicorns with corporate values of more than 100 billion yen to 100 from the current six.

“Japan is opening up opportunities to South Korean startups, which need a global scaleup,” said Shinhan Venture CEO Lee Dong-hyeon. “Since the country is not a market that companies can penetrate alone, it is necessary to have reliable local partners.”

GO JAPAN

Major South Korean startups such as online fashion platforms Musinsa Co., Ably Corp. and Zigzag have been already doing business in Japan. Software as a service (SaaS) operators including Channel Corp. successfully settled in the country, while startups in other sectors such as fintech have forayed into the market.

South Korean startups are also looking for investments from venture capitalists there.

Startups in a scaleup phase like foreign currency payment solution provider Travel Wallet, biotech company Attis Lab, customized glasses maker Breezm, online liquor store Kihya and carbon nanotube developer AweXome Ray met Japanese venture capitalists at an investor relations (IR) session in Japan last month.

About 20 venture capitalists including MUFG Innovation Partners Co., SBI Investment Co., Tokyo University of Science Innovation Capital, IMM Japan, Colopl Next Inc. and Global Brain joined the event.

“Japan is a blue ocean any tech company must enter as the size of its domestic market is more than double that of Korea's,” said Travel Wallet CEO Kim Hyungwoo.

LOOKING FOR JAPANESE INVESTORS

Lotte Ventures Corp., the corporate venture capital unit of South Korean retail-to-chemical conglomerate Lotte Group, selected 11 domestic startups with businesses in Japan such as autonomous-driving robot startup Neubility and security solution provider S2W Inc.

Those companies are scheduled to meet Japanese investors Oct. 11-13.

Shinhan Financial plans to hold an IR event for South Korean and Japanese startups in December as its venture capital unit is set to establish a fund in Japan.

South Korean government actively support local startups’ business expansion into Japan, taking advantage of the improving diplomatic relation between the two countries. The Ministry of Culture, Sports and Tourism along with the Korea Tourism Organization arranged an IR session for the first time to help 12 domestic startups in the transportation, accommodation and technology sectors including Kaflix Co. meet Japanese investors last month.

The Korea SMEs and Startups Agency held a pitch event for selected startups in the deep tech, commerce and vegan food industries in Japan. Among them, work platform startup Alicorn Inc. agreed to provide a remote operating system for the building management to Rakuten Mobile Inc.

RECORD-BREAKING VENTURE CAPITAL MARKET

The Japanese venture capital industry has continued to grow to its biggest-ever size even while the global market has suffered from soured investor sentiment amid rising interest rates.

Japan’s investments in startups surged to an all-time high of 877.4 billion yen, up 58% from 2020.

“The Japanese IPO market has low barriers, allowing venture capitalists to easily exit with profits,” said Global Brain’s South Korea Office Representative Lee KyungHun, referring to the initial public offering.

The government also actively supports startups. The country plans to prop up companies in the next-generation semiconductor, Web 3.0 and healthcare sectors while helping research and development in the bio and aerospace industries in 2024.

Japanese companies are seeking cooperation with South Korean startups to expand their businesses in the global market, said Kim Hyun Jong, head of the Korea Techno-Venture Foundation’s Tokyo office.

“The country is mainly helping Japanese companies with great material technology and Korean companies with global marketing strength make inroads into the Chinese and Southeast Asian markets,” Kim said.

Write to Lan Heo, Joo-Wan Kim and Dong-Hui Park at why@hankyung.com
 

Jongwoo Cheon edited this article.