A look into Korea’s tech infrastructure and Startup Ecosystem

January, 2015

Seoul, The Hottest Startup Hub In Asia?

Nathan Millard @Nathan_mill

It wasn’t always like this…

Gangnam 1950s

Gangnam 2015

• 25.6M in Seoul Metropolitan Area (1/2 of population)

• Home of Samsung, LG, Hyundai, Hallyu

• Hard working (10-12 hours per day)

• Tech-savvy & Engaged

• Homogenous & Impressionable

• Trend setters• Pop culture, tech, fashion

Understanding Korea

• $25,997 per capital GDP as of 2013

• Asia’s third largest e-commerce market (12%+ annual growth since 2006)

• Increasingly vibrant exit market (M&A and IPO)

• Engaged consumer base, eager to spend through tech

Korea’s Economic Landscape

• Fastest mobile broadband (excellent for content consumption)

• High smartphone penetration: 80% as of September.2014

• High Android-powered smartphone penetration:90% of smartphone user

• 15 % for web-surfing & 85% for using mobile apps ( high usage in mobile-app services)

• Kakao games platform boosting Google Play

• Currently, no serious challenge against Kakao Talk

Korean Mobile Market Overview

IPhone

= 85% M/S

3 big Search Engine companies

= 14% M/S

Samsung & LG hold 80% m/swhile Apple 20% in device market

= 15% M/S

92 % m/s for Kakaotalk & 4% for LINE in messenger service (as of Sep.2014)

Large (Korean) Corporations Dominate

•#3 in the world for downloads

•#3 in the world for revenue

•25%+ online for 8+ hours/day

•$100M USD monthly app revenue

<Whole population engaged>

App Opportunity in Korea

• First country to have professional PC gamers

• PC rooms used to dominate free time (now mobile)

• Highly experienced gaming market place

• Exceptionally high consumer expectations

• Infrastructure supports ‘heavy’ games and apps

• 80%-90% of app revenue from games

<Anipang: First Kakao Game>

Gaming in Korea

<Clash of Clans: #1 ranked in Google & Apple app store>

• Highly trend-focused, social, and fickle

• 90% of top games released in previous month

• Local apps / services often triumph over imports

• Large marketing budgets are [now] required for engagement

• Localization can not be stressed enough

Koreans as App Consumers

• World leader in mobile payments

• Extensive NFC enabled devices • SK Planet’s ‘T Cash’• Used for 54% of in-app purchases

• Connected devices offer future opportunity

• Samsung aims to be IoT leader

• Korea is a great test market / gateway to Asia

• Bitcoin emerging (Korbit, Coinplug, CoinOne)

Mobile Payments Situation

Unit: $Billions “10 companies belong to what

we call the “Korean Unicorn Club” (by our definition, Korean software companies valued at over $1 billion by public or private market investors)” – John Nahm, Strong Ventures (9/11/2014)

US Population: 318 million | S. Korea Population: 50 million (15.7% of US) US GDP: $16,8 trillion | S. Korea GDP: $1,3 trillion (7.8% of US) All Rights Reserved

Korean Unicorn

Startup Ecosystem

Accelerators

Startup Ecosystem

• 130 Angels (around 50 active)

• Seed Investment: KOISRA

• Series A: Capstone, CCVC, Venture Port, Formation 8, K Cube Ventures, Strong Ventures, Smilegate Investment

• Series B: Altos Ventures, CyberAgent Ventures, Softbank Ventures, Qualcomm Ventures, IMM Investment, NeoPlux, Stonebridge Capital, DSC Investment, SL Investment

Startup Ecosystem

Investors & VCs

Startup Ecosystem

Startup Ecosystem

Co-Working Spaces

Startup Ecosystem

• $5B USD pledged for building “creative economy”

• Legitimizing entrepreneurship

• Innovation centers in major cities

• TIPS program (1:5 & 1:7 matching)

Startup Ecosystem

Government

Startup Ecosystem

• Hanllyu (K-pop, Dramas, Movies)• On mobile and Global

• Gaming: Devsisters, Smilegate, NCSoft, Nexon, WeMadeEntertainment

• Online content distribution: Viki, DramaFever

Startup Ecosystem

Content Heritage

Startup Ecosystem

• IT infra that supports IT development

• Quality engineers, with strong work ethic

• Greater understanding of risk

• Entrepreneurs with global vision and bigger, better quality ideas

• Mentor networks and Angel investors

• Government support (money, PR, education, economic diversity)

• Exchange of students & ideas (Korea – West)

• Economic conditions that can support entrepreneurship

Startup Ecosystem

Reasons for Growth

Startup Ecosystem

Startup Ecosystem

StartupsEntrepreneurship in Korea has never been this hot. Korean founders are passionate, talented and building companies that are having a real impact in the region, and across the world. While there is much still to achieve, the future looks very bright.

• Highest number of startups per capita in the world• China has highest number of startups of any country• USA has ‘the best’ startups

• Mostly consumer facing mobile services• 80% of the country own smartphone & Per capita, 280$ annual mobile

spend in Korea vs. 105$ in U.S• Fastest broadband service: 25 Mbps in Korea vs. 4.5Mbps global average

• Gaming, E-commerce, social-powered platforms, Contents

Startup Ecosystem

Hottest StartupsHottest Startups

• Not enough M&A (around 98% of exit in Korea is through IPO. Figure is similar in rest of Asia, except China where is around 50%-50%)

• Large Asian corporations don’t acquire enough startups in Asia.(except China)

• Japanese companies are most active, but mostly high value, rather than volume. Examples are Viki and Viber. (only a small number of startups / VCs benefit)

• US companies don’t know how to engage with Asian M&A opportunities. Also US companies are also more focused on technology, rather than

users / sales. (Asian startups are more service than tech driven)

• In Asia, M&A is generally focused around users / revenue.

• There is general disconnect between what US companies are looking for and what Asian companies can provide.

ProblemsProblems with M&A in Asia

M&A & IPOTotal M&As in Korea in 2013 / 2014 http://www.mergermarket.com/pdf/MergermarketTrendReport.Q12014.Global-FinancialAdvisorLeagueTables.pdf

First Quarter of 2014. (pg10-11)http://www.mergermarket.com/pdf/MergermarketTrendReport.H12014.Southkorea.pdf

First half of 2014 http://www.mergermarket.com/pdf/Mergermarket.2013.LegalAdvisorM&ATrendReport.pdf

M&A report 2013Which Korean companies are acquiring startups? (including gaming)DaumKakao, NHN Entertainment, SK Planet, Camp Mobile (NHN subsidiary), Nexon (gaming) http://www.etnews.com/20141106000010 -Sk Telecome buyout of US startup ‘Shopkick”

Why is there NOT a healthy M&A culture in -Why is M&A so weak in Korea?Samsung & LG – want to do things internally, because they think it’s cheaper / easier / quicker (they were wrong). Samsung is now doing M&A, but mostly overseas.Lack insight to see the future (unlike like Softbank)Struggle to deal with post-merger integration (doesn’t work due to company culture)

M&A and IPO<More inbound, cautious of outbound

deal>

• Inbound merger in H1 2014 reached 11.1bn, x12times from H1 2013. But 51% drop in outbound deal(1.4bn) compared to H1 2013 (2.9bn). • Inbound mergers were mostly big corporate mergers.

• Korean companies are getting cautious in acquisition with new companies. • Survey among 317 CEOs (Korean/Chinese/Japanese) on

willingness on M&A plans shows: only 5% of korean CEOs willing new M&A while 34% of jananese strongly willing to new M&A , and 53 % of them seeking for outbound M&A.

• Maturing platform situation (dominated by 1 – 2 players)

• Kakao–Daum merger could create super-company?

• Global competition (hardware, software, services)

• Opportunities in IoT & smart home

• Korean tech startups & SMEs more determined globally

• Korean consumers will lead global mobile trends

• Closer relationship with China

Today’s TrendsToday’s Trend

nathan@g3partners.asia @Nathan_mill+82 (0)10 8723 7702

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