[THE INVESTOR] Bon Angels, Korea’s leading early-stage venture capital firm, is known for a number of distinctive characteristics.
While the 10-year-old company is the longest-running private fund, all its eight partners have experience in startups rather than financial industry, which is the case with most venture capitalists. Last but not least, instead of a dazzling office space in a high-rise, its office is in a regular house with a garage-like space for startups.
Bon Angels CEO and Partner Simon Seok-heun Kang. Park Hyun-koo/The Investor
Avoiding government funds is not easy in Korea. The state is the biggest player and will continue to be at least in the near future. In the next three years, it plans to inject some 10 trillion won (US$9.09 billion) into fostering startups with cutting technologies such as artificial intelligence and big data.
“Once we realized that, we felt a strong sense of responsibility to keep this venture fund going and making it successful,” said Simon Seok-heun Kang, CEO and partner of Bon Angels, in a recent interview with The Investor.
“State funds, in the end, are taxpayers’ money that has to be used for public benefit, which is not bad at all, but it has limitations, and in certain areas, such as mergers and acquisitions, the private sector has to take the lead.”
Bon Angels has invested in about 130 early-stage startups so far, with the amount totaling 52.5 billion won (US$47.75 million). Some of the successful investments include Woowa Brothers, operator of the country’s biggest delivery app Baedal Minjok and Ginno Games, the maker of Tera which was later acquired by Bluehole Studio.
To maintain its reputation, and also stay ahead in the local VC community, Bon Angels is now planning to take the next step, which is to expand overseas -- especially Southeast Asia, which has a huge population base and corresponding growth potential.
“Our goal is to replicate our success in Korea,” said Kang. “We are co-investing in Southeast Asia-based companies with established local partners and relatively small investments at the moment, but by the end of next year, we will significantly increase our funding in Southeast Asia.
The following are excerpts from the interview.
The Investor: VCs are saying market competition has become fiercer after the minimum setup requirement was lowered to 2 billion won from 5 billion won. How do you plan to deal with the growing competition?
Kang: I expect competition among VCs to get fiercer by the year, and it’s worrisome because the availability of abundant funds will increase the valuation of startups. So this could create some chaos. But for Bon Angels, which invests in the early stage, attracting next stage investments may actually get easier. To sum up, I think there might be some confusion at the beginning but I think competent ones who really care about startups will survive at the end. And this is also why we should go abroad -- especially Southeast Asia.
TI: Could you tell us about your portfolio for the Southeast Asian markets?
Kang: We have already invested in four startups in Vietnam, three in India, three in Indonesia and are considering investing in startups in the Philippines, Malaysia, Singapore and Thailand. These numbers include both local startups and Korean companies doing business there. The investments have been made with established local partners with a relatively small amount. But we will significantly increase our investments by the end of next year and will make more investments in each country.
TI: Why should Bon Angels and other VCs go to Southeast Asia?
Kang: The population is huge, and there is more room to grow compared with developed countries like Korea or Japan.
Vietnam seems to be more attractive than other emerging markets as the country shares some cultural familiarity with Korea and has good human resources. For Korean startups, we will build a network and set up a platform there and help them expand in the emerging markets.
TI: Why should Southeast Asian startups seek investments from Bon Angels?
Kang: For startups in Southeast Asia, if they receive our investment they could be introduced to other Korean investors too. Also, we can help them connect with the Korean market and its advanced IT technologies.
TI: How do you perceive the current competition in Southeast Asia?
Kang: The Indonesian market is not that easy because there are many funds from ethnic Chinese. Some even say that it’s already very competitive there. Japanese investors can be found everywhere including places like Myanmar.
TI: Could you introduce Bon Angels’ investments in Japan?
Kang: We entered the market about four years ago by investing in Korean-led startups, but now only half of our (12) investments in Japan are in Korean firms. We realized that the Japanese market has a great potential with a sizable market and less competition among venture capitals as not many people pay attention to Japan and local VCs go overseas. It is difficult to make a foray into the market but once you do, the Japanese market can be quite attractive and lucrative.
TI: You invest in two or three companies a month. One recent investment involves a babysitting service. Can you tell us more?
Kang: The firm did a good job in analyzing problems faced by similar business models in the past. Some startups do know well about their own stuff but they don’t necessarily have good knowledge of past attempts or other teams, which they should. These are the kind of questions VCs always ask. In addition to “why something is working”, you should also be prepared to answer “why something is not working.”
TI: Recently, the Transport Ministry and Seoul Metropolitan Government sued ride-sharing app PoolUS for violating traffic laws. PoolUS and other startups criticized the government. What’s your opinion on the situation and Korea’s regulations?
Kang: I entirely agree with the views of startups that we should abandon the “positive regulation system” which lists what’s permitted and anything not covered is deemed banned.
I know it won’t change overnight, but we should use this conflict as an opportunity to solve one problem at a time. I have great respect for startups continuing to innovate under these circumstances.
TI: All Bon Angels partners are former or current entrepreneurs. It compares with other venture capitalists in the country, many of which have a financial background. What are the advantages and disadvantages?
Kang: In my opinion, there is no disadvantage. Instead, we can understand startups better than anyone else. We could easily create empathy with startups even before signing a contract. Some of our partners at Bon Angels were entrepreneurs who approached us for investments. We actually prefer someone who has some experience in startups. I believe this is a kind of virtuous circle -- those who were entrepreneurs later becoming investors.
TI: How do you see the Korean government’s role in venture funds? Some criticize that the government’s involvement is excessive and that the private sector should be more involved?
Kang: I can tell the government has tried quite hard to adopt good policies. But some matters -- such as mergers and acquisitions -- have to be led by the private sector. Then comes the question of why the private sector. That’s because there are not many successful cases nor much experience in general. They have to go through a long line of decision-making and are forced to compare with competitors, which also don’t have much experience in that area. In China, there is some sort of desperation. If you don’t buy this startup, your competitor would buy it. Here in Korea what I see is some sort of invisible collusion (not to do anything). If M&As are difficult to begin right away, then they could put more resources into venture capital firms.
By Park Ga-young (email@example.com)