[THE INVESTOR] SAN FRANCISCO -- Korean startups flock to Silicon Valley hoping to become the next Facebook or Google. However, setting up a business from scratch where thousands of new startups come and go every year, is not easy, and becoming a “unicorn” is near impossible.
A unicorn, a term so worn that venture capitalists are vowing to stop using it, is a startup valued at over US$1 billion.
One fundamental reason is because they can’t get enough funding, according to Tim Chae, head of the Korean unit of US accelerator 500 Startups.
“For Silicon Valley investors, choosing to invest in local startups is a much easier option,” Chae said in an interview with The Investor, adding, “Why would US investors want to back Korean firms that are new to Silicon Valley instead of US-born startups?”
Despite the odds, receiving financial backing from American accelerators and VCs is not impossible if appropriate strategies are deployed, according to Chae, who runs 500 Kimchi, a micro-fund of US$15 million.
He offered some tips for Korean startups to lure some Silicon Valley cash and gain a footing in the Bay Area.
First of all, a company should either run a business in a certain sector for which Korea is widely famous worldwide, such as beauty and e-sports segments, rather than roll out me-too services and products.
OP.GG, a game data provider, and hangover drink maker Morning Recovery, both of which are backed by 500 Startups Korea, are a case in point, he said.
Founded in 2013, OP.GG offers data on players’ statistics for online game “League of Legend.” Its monthly active users and page views reach more than 20 million and 300 million, respectively, and 70 percent of its users are in global markets.
Morning Recovery produces hangover drinks -- the hangover cure industry has been growing for years in Korea and is now worth around 137 billion won (US$125 million) in size, according to industry data. The hangover drink maker, launched just a couple months ago, already generates some revenue in the US, approximately 500 million won per month.
US accelerators and VCs, like 500 Startups, often invest in No. 1 players, so achieving a dominant status in a nation makes things easy for a startup to raise funds as well.
“500 Startups also makes investments in firms which have a business model that is new to the Korean market, assuming the concerned domestic segment could scale up to a tenth of a mature market that already has similar businesses,” he said.
Take a deeper dive
Chae also urged Korean firms to take “a deeper dive,” to better understand global customers and markets.
“A problem I often see in some Korean startups and state-run agencies for startup programs, is that they just send their people over to Silicon Valley without proper preparation, thinking they can make it easily there,” said Chae said.
Among others, growth marketing is one area where many Korean firms need to brush up on, he said.
Growth marketing, often known as growth hacking, is a process of finding ways to achieve exponential growth and attract engaged customers through new experiments, monitoring and analyzing in an efficient manner.
Chae said many Korean firms utilize only a single analytics tool -- which is highly necessary when executing growth hacking strategies to see all sorts of performance metrics -- while Silicon Valley firms in the similar business stage use five or six different ones to get more insights into users and the overall industry. Even if they use those analytics tools, they are sometimes unaware of how to optimize the information they get from the digital solutions.
“Without knowing how to target customers, Korean firms will have to pay more costs than Silicon Valley rivals and they will consequently remain in a losing paradigm,” he said.
500 Startups has started its Series A program in June, through which the accelerator preps Korean firms on attracting new customers, increase user retention and execute digital marketing schemes based on data. The participants of the new program include OP.PG, Spoon, a voice-based social media, and People Fund, a peer-to-peer lending platform operator.
Rather than trying to go directly to Silicon Valley, startups, especially those who are not familiar with the US market, it would be better for Korean firms to build a strong business model and a solid user base in their home country first and then set their eyes on global markets, Chae said.
He said 500 Startups Korea, which was established in 2015, plans to continue making contributions to nurture fledgling Korean startups into a unicorn in the coming years with new rounds of funds and support campaigns.
“We are certainly going to see a unicorn born out of 500 Startups Korea’s portfolio in the coming years,” Chae said.
The accelerator’s US$15-million fund 500 Kimchi has backed more than 30 Korean startups out of 70 to 74 the company had initially planned.
By Kim Young-won (firstname.lastname@example.org)
This story was sponsored by the Samsung Press Foundation. - Ed.