beSUCCESSSpecial Report

KOREA’S VENTURE CAPITALISMFOR START-UPS:

ANGEL INVESTORS

June, 2012

EUNSE LEE

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beSUCCESS Special Report – Korea’s Venture Capitalism for Start-ups: Angel Investors

When Dante rediscovers beauty, the Age of Darkness is finally ended after long 1,000 years. Renaissance begins. From Dante and Petrarch to Da Vinci and Michelangelo,the extraordinary minds of the time find the purpose,the beauty, and the essence lie in the humanity itself.And we, mankind finally opens eyes to ourselves.

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And now, we know all their visions could come to life because of the support of possibly more visionary group of people called the Medici.In the world of entrepreneurial spirit,probably angel investors should becalled the Medici in the 21st Century.And today, we will look at the Medici of Korea for start-ups.

(img source: www.joysf.com)

Overview – Angel Investment in Korea

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beSUCCESS Special Report – Korea’s Venture Capitalism for Start-ups: Angel Investors

☜ Angel Investment Support Center• Initiated by Korea’s SMBA (Small and Midsized

Business Association) and run by KVCA (Korean Venture Capital Association)

• The official hub to Korea’s angel investment and investors

• Registers individual angel investors and angel clubs

• Offers matching funding to registered angel in-vestors’ investment (up to KRW 200M)

• Offers learning opportunities for angel in-vestors on the related issues through seminars and regular lectures

• Offers an online market-place where angel in-vestors can find start-ups and early stage com-panies that are looking for funding

• http://www.kban.or.kr (Korean pages only)

Snapshot of Korea’s Angel Investments• According to SMBA and AISC, currently 1,400++ individual investors and 41 angel clubs are registered.

(Note: There were zero angel clubs in 2002 after IT bubble (in 2000, there were 11 angel clubs, investing KRW 166.9 billion in 325 companies. – source: Korean Statistical Information Service, “KOSIS”)

• Korea’s individual angel investors and angel clubs invested KRW 32.6B in 2010, which is less than 20% of that in 2000, and about 3% of total venture capitalism in Korea. (source: SMBA)

• The numbers of registered individual angel investors and registered angel clubs is growing at a fairly high rate, however their activities are not in terms of the volume of investments.

• Unlike the benchmark (in U.S., many of angel investors are entrepreneurs who capitalized their companies), majority of angel investors in Korea are from the general public.

Overview – Why We Need More Angel Investors in Korea

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beSUCCESS Special Report – Korea’s Venture Capitalism for Start-ups: Angel Investors

2008 2009 2010 20110

10000

20000

30000

40000

50000

60000

70000

#Incorporation by Age Group

60<50 - 5940 - 4930 - 39<30

2008 2009 2010 20110

10000

20000

30000

40000

50000

60000

70000

#Incorporation by Seed Size (KRW, Mil-lion)

5,000<<5,000<1,000<500<100<50

• Around 2,000 new businesses are established by the age group of under 40 and vast majority of new in-corporations are of under KRW 500M in the seed.

• These new businesses are in enormous need of work-ing capital in order to survive and grow.

• However, about 87% of such new business have no accessibility to VC funds throughout their life-cycle.

• Hence, these new businesses rely heavily on loans from financial institutions – say, banks.

• However, Korea’s harsh terms on collaterals and per-sonal responsibility of loans are heavy burdens.

• More angel investors, who offer initial working capital and bridge new businesses to safer financial sources are needed.

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Early

Sta

ge

Expa

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n St

age

Avera

ge0.0

20.0

40.0

60.0

80.0

100.0

SMB's Accessibility to VC Fund by Stage

No Actual Deal ExperienceRejectedDeal OngoingVC Invested

Source: KOSIS Source: KOSIS

Source: KOSIS

Overview – How to Encourage Angel Investments in Korea

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2006 2007 2008 2009 2010 2011 -

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Post-money Valuation (KRW, Billion)

14yr<7yr - 14yr5yr - 7yr3yr - 5yr1yr - 3yr<1yr

<1yr 1yr - 3yr

3yr - 5yr

5yr - 7yr

7yr - 14yr

14yr<0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

%Return at Exit per Stage in 2011

InvestedReturn

Source: KVCA

Source: KVCA

• Angel investments take up to 14 years to realize satisfactory return. (<1yr return: 1.09, 7-14yr: 1.53), due to weak exit model in Korea. (See our previous report at http://ow.ly/bUaZI)

• To encourage angel investments in Korea, we need:

To promote the attractiveness of venture company acquisition for established com-panies.

More tools to encourage M&A, such as M&A funds, and what not.

To promote the global attractiveness of Ko-rea’s start-ups in order to invite more inter-national/global capital to Korea, who can bring a greater buyer pool and further fund-ing opportunities.

beSUCCESS Special Report – Korea’s Venture Capitalism for Start-ups: Angel Investors

As argued earlier, angel investors, in Korea par-ticularly, must perform very important roles in the eco-system, not just to provide initial work-ing capital to survive, but to introduce start-ups to a less risky financial source of venture capital. Thus an angel club’s quality, in terms of its con-figuration, is perhaps more important than the size of its fund. (Interesting! Don’t we say the same things to start-ups?)So here, beSUCCESS has selected three angel clubs you might want to meet.

Who Should I Go Talk To?

Korea’s Angel Clubs

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beSUCCESS Special Report – Korea’s Venture Capitalism for Start-ups: Angel Investors

Go Venture Forum (“GVF”)You just can’t talk about Korea’s start-up scene with-out Go Venture Forum. Started in 2007, GVF invests in some (if not all) of the most successful start-ups in Korea. GVF also holds monthly forums for en-trepreneurs, VCs, and everybody in the community on the last Thursdays every month. Youngha Go, the chair and the founder of GVF, is a former CEO and chair of SK Broadband Media, one of the largest IPTV operators in Korea.

Website: http://www.facebook.com/venturekorea

Bon Angels Venture Part-ners (“BAVP”) was founded by Byung Gyu Chang, a co-founder of Neowiz (http://www.neowiz.com/en/). (Almost) everything BAVP touched is now turning into gold. Jang, himself, has successful exit experience to sell his company to NHN, the largest portal in Korea, and many of its portfolio companies are successfully exiting through acquisitions, as well. BAVP consists of three partners and invests only by unanimous decision of all three partnersWebsite: http://www.bonangels.net/

Primer is probably Korea’s first start-up incubator. Co-founded in 2010 by a group of successful entrepreneurs – Douglas Guen, Young Gil Song, Jae Woong Lee, Taek Kyung Lee, and Byung Gyu Chang, Primer invests in and incubate start-ups under the name of Primer Club (http://www.primer.kr/?page_id=85) and it offers the club members the opportunity to get funded by Sili-con Valley VC. Primer also offers workshop seminars for entrepreneurs.Website: http://www.primer.kr/

Major Investments of Korea’s Angel Investors

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beSUCCESS Special Report – Korea’s Venture Capitalism for Start-ups: Angel Investors

Among other angel clubs in Korea, our choices – GVF, BAVP, and Primer, are probably most ac-tive.First, GVF is somewhat more loose community of investors. However, 30 of the key investors view and screen possible investments. Then, upon consent, each of the 30 investors invest the equal amount to a start-up. Among many portfolio companies of GVF, is i-um (http://www.i-um.com). i-um (meaning “linking” in Korean) offers a mobile product called social dat-ing, which suggests its members one opposite-sex member every day. Launched in 2010, this simple service is getting very popular, reaching its 250,000th member this year, and is getting good interests from foreign and domestic investors, as well.Primer, on the other hand, is incubating 12 start-ups at this moment (http://www.primer.kr/?page_id=85). among which are onoffmix (http://onoffmix.com, an online platform to share and search for offline events), Add2Paper (http://www.add2paper.com, an advertisement platform via free printing service for college students), and myrealtrip (http://myrealtrip.com, an online marketplace for individual tour guides) to name a few. What differentiates Primer’s portfolio from others is that its portfolio companies are actually staying profitable organically.Lastly, BAVP has been investing in the companies that are now the biggest issues in Korea’s start-up community. Acquired by KT (Korea Telecom), Enswers (http://www.enswersinc.com/index_en.html) is probably BAVP’s most recent happy choice. Also, many of its portfolio companies made BAVP very happy by getting acquired by Korea’s largest IT players. To list a few, me2day (acquired by NHN, http://me2day.net), TicToc by Mad Smart (ac-quired by SK Planet, http://www.besuccess.com/eng/global-news/2012-startup-scene-south-korea) , Thinkreals (by KaKao, http://thinkreals.com/service/couponmoa), are among others.These portfolio companies of Korea’s angel investors are domestic success, however there are some other examples of making it cross-border success like ViKi (http://www.viki.com), it must be worth keeping keen eyes on K’s angels and start-ups for future business. - Eunse Lee, Seoul, Korea