Looking Forward to the Next Stage of Growth in the Korean Startup Ecosystem

After reading 'Startup Investment Attraction Strategy'.

After transitioning my career from the investment banking industry to Big Tech 20 years ago, I picked up a book on investment practices again. It was a joyful experience, filled with a sense of familiarity and surprise at the depth of content. Above all, I was warmed by the authors' and editors' evident dedication to making startup investment accessible and relatable. Furthermore, despite my relatively long career, I felt a pang of shame realizing that I had never put this much effort into knowledge sharing for younger generations.

Having primarily focused on B2B pricing, contracting, and negotiation at Microsoft and Salesforce after my last experience managing a government fund for mid-cap KOSDAQ listed companies, startup investment remains a relatively unfamiliar field for me. While in Singapore, I had opportunities to network and interact with professors, entrepreneur friends, and VC investors in the entrepreneurship field, but I never truly delved into the realities they were navigating. Ironically, in Singapore, where capital is readily available, the abundance of other financial products and investment opportunities, like real estate, seems to have fostered a stronger presence of family offices compared to venture capital. It appears that even the government, with its superior capital management capabilities, tends to be generous with investments in early-stage startups, which may contribute to the existence of several companies unable to overcome the chasm. As the book points out, this field isn't solely about having money.

However, the logic of capital remains centered around 'maximizing investment value.' This suggests that if a significant increase in value is anticipated, attracting investors could be relatively easier here. As more and more Korean startups are considering expanding into global markets, I've started to ponder how I can contribute to their success. This question spurred my reading of this book.

One aspect that offered a glimmer of hope was this statement: 'The long-term goal of a startup shouldn't be mere survival but substantial growth while delivering genuine value to its customers.' The definition of value varies depending on the stakeholder. For VCs and most investors, it would be monetary value (typically derived from future value based on growth rates). For some advisors, it could be the satisfaction of fostering growth. For government agencies, it could be a strategic move to expand the industry ecosystem, and so on. Since this book focuses on investment attraction strategies, let's limit the definition of value to its monetary aspect for now. Furthermore, the book views the purpose of investment attraction as securing funds to acquire resources for aggressive market capture. Back in 2005, when I first joined Microsoft, both Microsoft and Google were deeply involved in building large-scale data centers. My decision to change careers at the time was also driven by my role as an investment analyst, recognizing that no other company at that time could match their operational cash flow, market dominance, and profit margins. That expectation has materialized in the current share price, which is over 20 times higher than it was then. (Although, for personal reasons, I haven't been able to fully realize that capital gain.) This market-dominant position has also led to an excessive influx of top talent.

And we can observe companies (like WeWork) that are not startups capitalizing on this trend. The definition of a startup as 'an organization formed to discover and implement scalable and repeatable business models' was helpful in this regard. Examining whether a business model aligns with this definition appears to be the starting point for investment approaches. I found it noteworthy that investment firms also participate in managing the founders' mental state. It's like providing executive coaching. I have personally witnessed the profound impact of leadership coaching on organizational management, so imagining the pace of change and decision-making conflicts faced by founders who lack this experience while establishing an organization from scratch, I realize that this non-quantifiable aspect is crucial.

Also, considering that Singapore and London place particular emphasis on IRR, I anticipate that they might not have extended investment horizons. This leads me to believe that Korean companies venturing abroad could become attractive targets for mid-term investments. More mature companies or listed companies would already be considered targets for corporate finance. Therefore, companies considering overseas expansion might benefit from preparing IR materials and contracts in advance aligned with their future plans, unless it imposes excessive workload. In this scenario, they might target a 1.5 to 3 times return on investment while also ensuring that foreign capital doesn't become overly selective. As the investment perspectives of large corporations and startups differ, the book's detailed guidance on IR material preparation is a significant advantage. When I saw a Singapore-based VC analyst's feedback that many companies participating in events like D-Camp don't genuinely intend to expand overseas, it became clear that Korean entrepreneurs might face barriers beyond capital when it comes to overseas expansion. For example, Market Kurly operates within a restricted scope of business in the Singaporean market.

Over my extended international career, I've witnessed the proven work ethic and determination of Korean personnel. However, I've often noticed their relative lack of market adaptability and responsiveness. Whether this stems from the absence of intercultural intelligence or from initially defining their product's service addressable market as solely Korea, I'm not certain. However, the limited international success of Chinese mega ITC players suggests that a clear distinction exists between the Asian and global markets. Nevertheless, considering the difference in domestic market sizes between China and Korea, I believe that overseas expansion will inevitably become a necessity for Korean startups, albeit a point that requires further validation.

The book's detailed guidance on the nuances of term sheet and contract execution is another commendable aspect. These are insights typically gained through experience, which can be challenging to acquire prematurely. They are also aspects that are easily overlooked under pressure during negotiations. Finally, the inclusion of ESG (impact) investment is encouraging. If I have the opportunity to contribute in the future, I would certainly like to focus on this area. While I unfortunately missed the first session due to my return travel schedule, I'm looking forward to engaging in lively discussions from the second session onwards.