Seoul The Hottest Startup Hub In Asia A

Seoul, The Hottest Startup Hub In Asia? A look into Korea’s tech infrastructure and Startup Ecosystem January, 2015 Nathan Millard @Nathan_mill S

It wasn’t always like this…

Gangnam 1950 s

Gangnam 2015

Understanding Korea • 25. 6 M in Seoul Metropolitan Area (1/2 of population) • Home of Samsung, LG, Hyundai, Hallyu • Hard working (10 -12 hours per day) • Tech-savvy & Engaged • Homogenous & Impressionable • Trend setters • Pop culture, tech, fashion

Korea’s Economic Landscape • $25, 997 per capital GDP as of 2013 • Asia’s third largest e-commerce market (12%+ annual growth since 2006) • Increasingly vibrant exit market (M&A and IPO) • Engaged consumer base, eager to spend through tech

Korean Mobile Market Overview • Fastest mobile broadband (excellent for content consumption) • High smartphone penetration: 80% as of September. 2014 • High Android-powered smartphone penetration: 90% of smartphone user • 15 % for web-surfing & 85% for using mobile apps ( high usage in mobile-app services) • Kakao games platform boosting Google Play • Currently, no serious challenge against Kakao Talk IPhone

Large (Korean) Corporations Dominate = 85% M/S = 14% M/S Samsung & LG hold 80% m/s while Apple 20% in device market 3 big Search Engine companies = 15% M/S 92 % m/s for Kakaotalk & 4% for LINE in messenger service (as of Sep. 2014)

App Opportunity in Korea • #3 in the world for downloads • #3 in the world for revenue • 25%+ online for 8+ hours/day • $100 M USD monthly app revenue <Whole population engaged>

Gaming in Korea <Clash of Clans: #1 ranked in Google & Apple app store> <Anipang: First Kakao Game> • First country to have professional PC gamers • PC rooms used to dominate free time (now mobile) • Highly experienced gaming market place • Exceptionally high consumer expectations • Infrastructure supports ‘heavy’ games and apps • 80%-90% of app revenue from games

Koreans as App Consumers • Highly trend-focused, social, and fickle • 90% of top games released in previous month • Local apps / services often triumph over imports • Large marketing budgets are [now] required for engagement • Localization can not be stressed enough

Mobile Payments Situation • World leader in mobile payments • Extensive NFC enabled devices • SK Planet’s ‘T Cash’ • Used for 54% of in-app purchases • Connected devices offer future opportunity • Samsung aims to be Io. T leader • Korea is a great test market / gateway to Asia • Bitcoin emerging (Korbit, Coinplug, Coin. One)

Korean Unicorn 14 13 Unit: $Billions 12 11 10 9 8 “ 10 companies belong to what we call the “Korean Unicorn Club” (by our definition, Korean software companies valued at over $1 billion by public or private market investors)” – John Nahm, Strong Ventures (9/11/2014) 7 6 5 4 3 2 1 0 Coupang US Population: 318 million Daum USGmarket GDP: $16, 8 Com 2 US trillion | | NC Soft S. Korea Population: 50 million (15. 7% of US) Smile$1, 3 Gate trillion Naver S. Nexon Korea GDP: (7. 8% of Kakao US) All Rights Reserved LINE

Startup Ecosystem Startup Accelerators Traditional Corporate Universities VCs Entrepreneurs

Startup Ecosystem Startup Investors & VCs • 130 Angels (around 50 active) • Seed Investment: KOISRA • Series A: Capstone, CCVC, Venture Port, Formation 8, K Cube Ventures, Strong Ventures, Smilegate Investment • Series B: Altos Ventures, Cyber. Agent Ventures, Softbank Ventures, Qualcomm Ventures, IMM Investment, Neo. Plux, Stonebridge Capital, DSC Investment, SL Investment

Startup Ecosystem Co-Working Spaces Corporate Funded International Government Local

Startup Ecosystem Government • $5 B USD pledged for building “creative economy” • Legitimizing entrepreneurship • Innovation centers in major cities • TIPS program (1: 5 & 1: 7 matching) Doing too much?

Startup Ecosystem Content Heritage • Hanllyu (K-pop, Dramas, Movies) • On mobile and Global • Gaming: Devsisters, Smilegate, NCSoft, Nexon, We. Made. Entertainment • Online content distribution: Viki, Drama. Fever

Startup Ecosystem Reasons for Growth • IT infra that supports IT development • Quality engineers, with strong work ethic • Greater understanding of risk • Entrepreneurs with global vision and bigger, better quality ideas • Mentor networks and Angel investors • Government support (money, PR, education, economic diversity) • Exchange of students & ideas (Korea – West) • Economic conditions that can support entrepreneurship

Startup Ecosystem Startups Entrepreneurship in Korea has never been this hot. Korean founders are passionate, talented and building companies that are having a real impact in the region, and across the world. While there is much still to achieve, the future looks very bright. • • • Highest number of startups per capita in the world • China has highest number of startups of any country • USA has ‘the best’ startups Mostly consumer facing mobile services • 80% of the country own smartphone & Per capita, 280$ annual mobile spend in Korea vs. 105$ in U. S • Fastest broadband service: 25 Mbps in Korea vs. 4. 5 Mbps global average Gaming, E-commerce, social-powered platforms, Contents

Hottest Startups

Problems with M&A in Asia • Not enough M&A (around 98% of exit in Korea is through IPO. Figure is similar in rest of Asia, except China where is around 50%-50%) • Large Asian corporations don’t acquire enough startups in Asia. (except China) • Japanese companies are most active, but mostly high value, rather than volume. Examples are Viki and Viber. (only a small number of startups / VCs benefit) • US companies don’t know how to engage with Asian M&A opportunities. Also US companies are also more focused on technology, rather than users / sales. (Asian startups are more service than tech driven) • In Asia, M&A is generally focused around users / revenue. • There is general disconnect between what US companies are looking for and what Asian companies can provide.

M&Aand & IPO M&A IPO o <More inbound, cautious of outbound deal> o Why is there NOT a healthy M&A culture in -Why is M&A so weak in Korea? Samsung & LG – want to do things internally, because they think it’s cheaper / easier / quicker (they were wrong). Samsung is now doing M&A, but mostly overseas. Lack insight to see the future (unlike Softbank) Struggle to deal with post-merger integration (doesn’t work due to company culture) a • Inbound merger in H 1 2014 reached 11. 1 bn, x 12 times from H 1 2013. But 51% drop in outbound deal(1. 4 bn) compared to H 1 2013 (2. 9 bn). • Inbound mergers were mostly big corporate mergers. • Korean companies are getting cautious in acquisition with new companies. • Survey among 317 CEOs (Korean/Chinese/Japanese) on willingness on M&A plans shows: only 5% of korean CEOs willing new M&A while 34% of jananese strongly willing to new M&A , and 53 % of them seeking for outbound M&A.

Today’s Trends Today’s Trend • Maturing platform situation (dominated by 1 – 2 players) • Kakao–Daum merger could create super-company? • Global competition (hardware, software, services) • Opportunities in Io. T & smart home • Korean tech startups & SMEs more determined globally • Korean consumers will lead global mobile trends • Closer relationship with China

Keep in Touch nathan@g 3 partners. asia @Nathan_mill +82 (0)10 8723 7702 Thank You!! S