Yozma Group, known for initiating Israel’s now-thriving startup scene, is seeking to do the same in Korea.
The Tel-Aviv-based venture capital firm’s confidence stems from its ability to spot the next global trend from a 25-year-old database, combined with extensive networks in the tech sector, and last but not least, a good eye.
“How do we detect the next tech trend? Since the early 1990s, Yozma has been working closely with R&D centers of multinational firms based in Israel, that are searching for new technologies to partner with or acquire,” said Lee Won-jae, head of The Yozma Group Korea in an interview with The Investor. “We have consulted with them to scout for good technologies they need for upcoming products. That experience and database have become our core assets.”
Lee emphasized grasping the future tech trend is crucial when searching for the next unicorn among the myriad of startups. Because ultimately, global manufacturers are the ones that will partner with these startups or acquire them to bring their technologies into life-shaping products.
|The Yozma Group Korea CEO Lee Won-jae. Yozma Group|
That’s why Yozma made the unprecedented move of opening its Korean unit in 2014, the first of its kind outside Israel. Through Yozma Korea, the group will launch its first fund in Korea for investing in local biotech and medical startups by the end of the year.
“There are many great technologies in Korea. But the firms are undervalued and have a hard time attracting investments to propel further growth,” said Lee, adding that Korean startups resemble “the ugly duckling” from the eponymous fairy tale.
“The startups don’t realize they actually can be and already are, in a way, beautiful swans. That’s why Yozma is here. We are hunting for the next swan with potential. Our job is to discover startups with good technology, nurture them and take them to the global stage.”
The Yozma Campus plays a crucial role in attaining these goals, he added. It is an incubating space for startups, offering entrepreneurship training, workspace, consulting and importantly, IR as well. Yozma plans to operate nine campuses across the country by February, including the one that has already opened in Pangyo, Gyeonggi Province, dubbed Korea’s Silicon Valley.
The following are excerpts from the interview. The Investor: How does Yozma make investment decisions?
Lee: We look at three main things. First is the firm’s technology potential. The technology has to be protected by international patents to ward off any international property disputes when it enters overseas markets.
Second, we put great emphasis on the team. We look deep into the founder and CEO’s background and the rest of the team members that make up the firm. Their teamwork is crucial for success.
Third and most important, the firm’s technology has to follow global trends. No matter how great the technology is, it won’t attract investments if the demand is not there. Our core strategy as a VC is to project what the next trend will be in three to five years and invest in firms that are developing these technologies. TI: What makes Yozma stand out from other VCs?
Lee: Yozma focuses on creating synergies and a healthy startup ecosystem. Let’s say Yozma decides to invest in a tech startup. We ask our partnering global tech companies to assess the technology to check its viability and potential. If the technology has some prospects, these tech firms will decide to make investment collectively with Yozma, entering a club deal. Following the investments, companies pour their resources to nurture and grow the startup as a stakeholder. Ultimately, the tech giants end up acquiring the startup, a win-win for all the parties involved. The tech giant will grow more by adapting the breakthrough technology, while the startup will expand in the global market. Yozma will earn profits from the sellout. This is what’s happening in Israel and Silicon Valley. I believe Yozma can help build a similar sustainable startup ecosystem here. TI: Korean startups often have great technologies but still can’t seem to attract investment from global VCs. What’s wrong here?
Lee: I think many Korean firms don’t realize their potential. They have superb technologies, but a lot of them are undervalued due to the so-called “Korea discount.” They resemble “ugly ducklings” in the eponymous fairy tale that don’t realize they are actually beautiful swans. So they end up not commercializing and also can’t get funding. Yozma’s role is to discover the swans and take them to the global stage to expand the horizon. That’s why we focuses mostly on a firm’s technology when gauging its potential. We don’t look at revenues or other numbers at the early stage. Another reason is to the lack of successful exit strategies when it comes to Korean startups. Global VCs become hesitant when the IRR isn’t guaranteed, at least to an extent. TI: Do you think recent the North Korean issue or THAAD dispute also adds to the “Korea discount”?
Lee: The ongoing threat from North Korea is an important factor. Many international firms have been asking me about the situation here. It definitely influences their investment decisions. But as for the THAAD issue, I personally think it has lesser impact, unless the startup is eyeing the Chinese market. But we focus on the US and the European markets. TI: Which are the fields Yozma is mainly interested in?
Lee: We mainly focus on biotech, health care and medical devices firm. We also look into cybersecurity and fintech. In the bio industry, the latest keyword is immunology, as well as genomics, using genomics data for clinical diagnosis. TI: You emphasized the importance of IR. How should Korean firms enhance their IR capabilities?
Lee: Startups have to keep VCs in mind when writing investment proposals and conduct IRs. But most of the time, they tend to do IR with their own perspectives. Startups have to hook the attention of VCs by giving them what they want to hear.
It’s like a fisherman and fish. Startups have to capture a VC’s attention, by placing a worm on the hook, and not pizza to catch the fish. IR is not about just about promotion, but telling the tale that VCs want to hear.
The latest trend is video presentations. By providing a 3 to 4 minute video that describes the firm and its product, the firm can pitch an idea effectively in front of seasoned VCs. And then conduct Q&A session to explain further. At our Yozma campus, we provide consulting and make IR videos for the startups. With these two strong areas, startups can lure investments.
By Lee Ji-yoon and Ahn Sung-mi (firstname.lastname@example.org
About Yozma Group
Yozma Group is an Israeli venture capital firm established in 1993 by Yigal Erlich, then chief scientist of Israel’s Ministry of Industry and Trade, with a goal to revive the war-torn economy through fostering local VC market. Yozma focuses on early-stage funding in IT ventures, including health care, environment, mobile, data and security. Since then, it has launched three funds, Yozma I, Yozma II, Yozma III, managing more than US$220 million with direct investments in about 50 companies. Many of its invested startups went public on the NASDAQ or were acquired by global firms such as Johnson & Johnson. In 2014, it established The Yozma Group Korea, with plans to invest in Korean and Asian startups through its network of incubation hub Yozma Campus. It plans to build nine campuses across Korea by February.