VC Talk: Korean Venture Capital’s Past, Present, and the Future

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On November 3, five leading Korean venture capitalists gathered to discuss the current status and the future of the Korean venture capital industry.

Simon Kang (CEO, BonAngels), Byung Chul Ko (Managing Director, KTB Network), JP Lee (Partner, SoftBank Ventures Korea), Junghee Ryu (CEO, FuturePlay), and Eunkang Song (Representative Director, Capstone Partners), the living legends in the industry, were the members of a panel discussion session in the 2017 Future Conference hosted by Fast Campus. The session diagnosed where the 30-year-old Korean venture capital industry stands, and suggested its future pathway.

* Below is an event recap in a Q&A format by Platum.

Mr. Ko and Mr. Song, you two have engaged in the venture capital industry for the longest time among the panelists. How has the industry’s framework changed over time?

Song: The emergence of various investment mechanisms such as venture capital, accelerator, and micro VCs is noteworthy. This is closely related to the Lean Startup methodology. As there was AngelList in the US, Korea’s focus was on crowdfunding and the construction of network infrastructure to bridge investors and startups.

Ko: There was a significant development in investors in terms of scale, diversity, and modernization. Especially, from the investment aspect, increase in capital possession and supply resolved the information asymmetry issue to some extent. More importantly, it affected the power dynamics among different stakeholders in the industry.

Mr. Kang, Mr. Lee, and Mr. Ryu, you have started your own business and made an exit prior to becoming an investor. Please share your thoughts based on your experience as an entrepreneur and an investor.

Ryu: It’s just so different being one from being the other. As an entrepreneur, I have occasionally expressed my complaints on the share ratio the investors had taken. But as an investor, I think my share ratio is reasonable considering all the help I have provided including mentoring. This, for the past 30 years, was the dominant sentiment in the industry. I think it has changed now.

Kang: Speaking from a VC perspective, many of us invest to minimize the possibility of “failure” considering the capital involved. But I personally believe a VC should bet more aggressively – even if that VC gets struck out. I try not to forget this motto.

Lee: It is very difficult to foresee the fortune of a business. Some people attempt to do this with numbers. In my opinion, that’s a subordinate investment perspective. Other people do something called a “club deal,” which is diversifying the investment. I can’t blame them, but I doubt that they understand the essence of this business. Still, I do see an optimistic trend nowadays.

How do you make investment decisions?

Lee: Everyone makes a great presentation, so it’s not a good idea to make a hasty decision based on their investor relations presentations (IRs) or reports. At SoftBank Ventures Korea, we have four members who take charge of evaluating companies in their early stages. They analyze the industry, weigh the investment value in the industry, and look at the team’s strategy and their directions. If all four members come to a consensus, we invest in that company. Normally we don’t make judgments solely based on IRs.

Song: No VC invests without understanding the industry. Only with the proper understanding of the company and the industry can we provide help and guidance. That is my principle.

For the past couple of years in the US, it was a trend to maintain a full-time investment supporter. What’s it like in Korea?

Kang: I think having supporters is very helpful especially at the early stage. In our case, we help nascent companies in fields including PR and legal. We also hire overseas branch managers for deal sourcing purposes as well as helping companies that aim to expand overseas.

Ryu: Full-time supporters should be focused on helping startups with HR, mentoring, and patents. However, it is still worthy to think about whether the supporters share the same concerns as the CEOs to the same degree.

Which country should Korea’s venture capital industry set its benchmark to?

Lee: I’m keeping my eye on Israel. Israel has a vivid startup support despite its small population. The country nurtures startups and harvests the fruit by making an exit, for example, to the US with an IPO – a virtuous cycle.

Kang: Silicon Valley, with its abundant information, tends to set and lead the agenda. In terms of VC activity, I think Japan and Southeast Asia are noteworthy. As a matter of fact, many Japanese investors are out in Southeast Asia already. Singapore VCs also invest in different parts in Southeast Asia than in Singapore itself mainly for concerns with growth potential.

Ko: Is it necessary to benchmark others? We’ve been working in China since the mid-2000s, and some things that worked in Korea did not in work in China, and sometimes the opposite. I don’t think it’s that simple. One should be careful in simply implementing another country’s model as is; nor should one refrain from hastily giving up on doing so.

The VC recruiting process is very secretive. How do you hire? Can one start as a junior and end up as a professional investor?

Song: We focus on people who have been active in this field and with a specific interest. We actually have an open position at the moment. We look forward to meeting a capable VC who can add value to our team.

Ko: We prefer people with real investment experience, because we believe that a certain amount of investment experience is a prerequisite to having subjectivity.

Lee: We prefer people with diverse experience. Investment is not only about giving and taking, but there’s more to it such as collection and relationship with the limited partners. I think People with experience which can be helpful in these aspects can become handy to VCs.

Kang: We hire juniors with 1-2 years of experience. We don’t hire laterals from other VCs, nor someone who intends to remain in investment firms for a long time. Rather, we hire people who are willing to start his or her own business or join a startup after working with us.

Ryu: We prefer people with a startup experience, or those who have a critical mind. Only those who can get the better of our partners in an argument are qualified. Subsequently, we observe their investment performance through a complex process.

Inspired by Platum

Image source: Platum

Max is an LL.M. Candidate at Georgetown University Law Center. He is interested in the social impacts made by startup companies, and longs to contribute to the betterment of emerging companies. Max can be reached at hankuhm.lee@techforkorea.com.

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