Back in the 1960s, South Korea was one of the poorest countries in the region. But today, it is a developed industrial state, a global frontrunner in disruption and innovation.
The Korean government has been committed to attracting foreign investment as well as improving the business climate for startups. Supporting innovation has several benefits: it increases self-employment among young people as well as raises the competitiveness of the market.
In this article, we’ll run a quick overview of the key trends of the regional startup ecosystem and name the most interesting projects to keep an eye on.
The most notable trends in the Korean market
The South Korean market is dominated by local companies in all spheres of the economy. Even such giants as Yahoo and Google have either left the market, unable to withstand the competition, or accepted the need to cooperate with local companies like Daum and Naver.
Consumers’ preference for local brands forms the conditions needed for the growth of Korean startups. However, this is not the only factor of their expansion. Here are some other reasons behind the success stories of South Korean founders.
- Strong government support
- Good infrastructure
- Increasing availability of venture capital
- The launch of many accelerator programs
- The global ambition of local entrepreneurs.
In a minute, we’ll look into some of the factors and analyze how they enhance the South Korean ecosystem of innovation. For now, let’s go over the most prominent trends that influence the market.
Pop culture and fashion
Koreans are among the world’s most active consumers of digital content. A significant share of this accounts for online gaming. Just as much traffic is generated by the growing Korean pop culture, which, thanks to its drive and high quality, is turning from a purely domestic phenomenon into a significant export item. Startup projects such as Viki and Beat Packing Company are also helping the Korean phenomenon gain global audiences.
In general, Koreans are very respectful of Western culture, and they easily lend themselves to fashion. This leads to the success of such platforms as BALAAN and W Concept — fashion startups that work with European designers and outlets.
The respect for famous brands among Koreans is so great that sometimes it even reaches the verge of a cult. Therefore, it is not surprising that in the home country of Samsung, every third purchased smartphone belongs to Apple, even though South Korea’s entire infrastructure is designed to work with Windows.
Overall, the country closely follows the latest European and American trends and copies them with little adaptation. This should be taken into account by anyone planning to enter their market.
GameDev in South Korea
South Korean sophisticated and feature-rich software is now increasingly in demand in the market, being rapidly monetized.
The online gaming market is growing at a steady pace. Not even the approximate limits of saturation can be seen yet. In addition to the development itself, there are powerful advertising campaigns associated with it, with special TV channels entirely devoted to video games and cybersport. Sports competitions attract professional teams and fans from all over the world, with prize funds reaching millions of dollars.
Korean unicorn startups
Currently, the regional ‘Unicorn Club’ (South Korean startups valued at more than $1 billion) includes 12 members, according to CB Insights. They are:
- fintech developers Toss and Dunamu
- mobile and telecommunications startup Yelo Mobile
- supply chain, logistics, and delivery startup Kurly
- ecommerce D2C projects WEMAKEPRICE, Musinsa, and RIDI
- cosmetics manufacturers and distributors GPclub and L&P Cosmetic
- biopharmaceutical developer Aprogen
- O2O platform for hotel accommodations Yanolja
- car-sharing application Socar.
To date, 2021 was the best year for the Korean startup ecosystem, despite COVID-19. Venture capital investment for 2021 was around $6 billion, which also set a record level. This has led to more Korean unicorn startups. It shows that Korea is growing as one of the leading tech hubs in the world. Korea is now ranked 4th among the countries with the largest number of startup unicorns.
The growth of the local startup ecosystem is driven by a strong mobile infrastructure, venture capital boom, and support from the government. There are many new Korean venture capital firms looking to find the next Korean unicorn, and South Korea hopes to increase the number of unicorns in 2022.
Below, there are 5 potential unicorn startups to keep your eyes on.
- Mobile games developer NPIXEL
- Operator of Korea’s leading home furnishing platform Bucketplace
- South Korean food delivery platform Oasis
- Music copyright trading platform Musicow
- Provider of quick delivery services Mesh Korea.
Local and global ambitions
Korea’s economy is sustained by a few giant manufacturing conglomerates such as LG, Hyundai, Samsung, or Daewoo. Until recently, most companies focused on the domestic consumer (except for Samsung and LG). But now Koreans are increasingly gravitating towards international markets.
Indeed, even though most startups launch as local initiatives, some of them — especially unicorns — are planning to go overseas. When building new products, they take into account the consumer preferences of foreign audiences. And they are happily looking at investors and capital from other countries.
But still, globalization is not the only direction for South Korean businesses. Local markets are not forgotten. For example, tech giants such as LG and Samsung are trying to proactively engage with local startups rather than only look towards Silicon Valley.
Top 8 Korean startups
The South Korean government hopes that its status as the first country with mass 5G coverage will enable it to become a leader in areas such as ‘smart cities’ and autonomous vehicles. While these industries are emerging as the new hubs for startups and innovation, other fields have produced interesting business models and accumulated world-class expertise and knowledge.
Here are some examples of the most exciting startups in the region.
Daum Kakao is a collaborative project between Daum, South Korea’s second most popular portal, and Kakao, the country’s most popular instant messaging service. It has a total audience of more than 100 million users.
Founded in 2014, the startup provides next-day grocery delivery all over the country.
In mid-July 2021, Kurly raised $200 million in financing. It also explored IPO opportunities both overseas and domestically. After a detailed study of stock market conditions both at home and abroad, Kurly decided to conduct an initial public offering in the Korean stock market. As a result, Kurly plans to go public on the Korean stock exchange in June 2022. The company expects a valuation of $5.9 billion after listing.
Zigzag is a start-up in Korea that brings fast fashion and non-mainstream brands to a single ecommerce platform that is now accessible to more than 75% of Korean women in their 20s.
Founders report that the project amassed more than 10 million downloads (about 20% of South Korea’s population) and 80% annual transaction growth, offering more than 2,700 online shopping products on a single portal. The shopping experience is optimized with personal recommendation algorithms.
Yanolja is an online accommodation booking platform that has revived South Korea’s once-dying hotel industry and spawned another billion-dollar startup.
The Korean entrepreneur founded the company in Seoul in 2007. He has since turned it into a multifaceted hotel business with 32 million bookings and a large following of millennials.
In summer 2021, Yanolja received its biggest capital injection. SoftBank Group’s $30 billion Vision Fund made a $1.7 billion investment, making clear that it thinks highly of the platform’s future.
Viva Republica is a Korean start-up that was founded in 2011. The company introduced Toss, a P2P-payment app, in 2015. After it finishes its pre-IPO processes, it is expected to join the list of South Korea’s decacorns. Kleiner Perkens, Ribbit Capital and Sequoia China, the Chinese arm of Sequoia Capital, as well as Singapore’s Sovereign Wealth Fund have invested in Viva Republica.
According to The Wall Street Journal, after completing a $406 million funding round in 2021, the company has a valuation of $7.2 billion. Also, according to Seungong Lee, the company’s director, Viva Republica is eyeing a listing in the US in 2023.
The company has succeeded in capturing the South Korean P2P payment market thanks to its user-friendly app and more attractive rates than offered by traditional banks. Toss currently has 7 strategic partners and clients and recently partnered with swIDch.
Deepbrain AI is a startup in Korea that was founded in 2016 and is currently based in Seoul. The company has developed conversational AI technology that has many different uses, i.e. in broadcasting, education, and service sectors. The team aims to close the dialogue gaps between machines and humans.
Since its inception, the company has gone through 3 funding rounds in 2017, 2019, and 2021. The startup has been backed by a total of six investors who invested an impressive $52 million in the business.
Coupang is a leader in the ecommerce industry. The company has a billion-dollar turnover and the number of goods sold so far stands at 120 million. The funding to date stands at $3.4 billion.
In the year 2021, Coupang Inc. floated $4.6 billion worth of shares in an IPO on the New York Stock Exchange (NYSE). It was the largest IPO by an Asian company in the US since China’s Alibaba went public in 2014.
The service focuses on swift delivery. Customers can choose between two options.
- Rocket Delivery — orders are processed within 24 hours.
- Sunset Delivery — if the user ordered an item before midnight, the service will deliver it by 7:00.
The company was founded in 2010. In 2018, it managed to raise an impressive $2 billion from SoftBank Vision Fund. The list of investors included Sequoia Capital, Wellington Management, and Founder Collective.
Woowa Brothers is a company that was founded in 2010. Its core business is the development of applications in the foodtech field. The most popular is the food delivery service Baedal Minjok.
In 2018, after another investment round, the startup’s valuation reached $2.5 billion. The company raised $320 million in capital from investors such as Hillhouse Capital, Sequoia Capital, and the Sovereign Wealth Fund of Singapore.
According to founder and CEO Kim Bong-Jin, the startup’s immediate goals include developing artificial intelligence for robotic food delivery, as well as expanding overseas.
Tips for investors and startups in South Korea
Starting a new business in Korea rarely takes more than a week. Bureaucracy in this area is minimal, and the state fully supports the initiative of small and medium-sized businesses. Residents and non-residents are equal in their rights to start a business. There is a very developed market for intermediary services that help founders prepare the necessary documents to register a new company.
Also, there are no problems with accounting. In fact, most companies do not employ any accountants at all. There are countless outsourcing companies that handle all the financial operations, taxing, and other legal matters — all that for only $100–$200 a month.
But there are not many people in South Korea who speak foreign languages well, including English. So most outsourcing companies require an interpreter. Of course, Korean schools now teach English and many young people know at least the basics, but they don’t feel comfortable with using it. So for those making long-term business plans for Korea, it would be useful to learn Korean at least at a basic level.
Taxation in South Korea
The first thing an investor needs to know is the local taxation system.
Compared to the global average, it is quite flexible and democratic, with incentives and subsidy schemes for startups. However, the tax rate increases in proportion to the growth of net profit, which is calculated as total revenues minus expenses and in the first stage is a minimum of 10%.
It is also worth paying attention to geography. Benefits, taxes and government support can vary considerably from one area of the country to another.
Government funding is not available to a foreign entrepreneur as an individual. To get help from the country’s government, you would have to work in tandem with a Korean team. As for private funding, preference is also given to a team over a single entrepreneur.
Another feature of state support: funds allocated for the development of a particular startup cannot be redirected to another project. In theory, this is possible. But you would have to submit a new petition for review and get the whole process started from the beginning.
As a participant in the acceleration program, entrepreneurs must attend all the events envisaged. Startups also receive large sums for business development. They do not have to be repaid if the project proves successful. However, if the startup does not meet expectations, all grants and allowances will have to be paid back.
The seeming inconvenience is not without common sense. Investors, whether private or public, have an interest in the intended use of the funds and have the right to follow their fate. An organized and coherent team united by a common idea is easier to achieve success and tangible results than a solo entrepreneur. Here, the country of residence does not play a role. And mandatory participation in all of the activities of the accelerator program can be the key to success. After all, they are designed to educate, train, introduce, and create a supportive environment for the company.
Startup infrastructure and ecosystem
Korea has many hubs, business incubators, and accelerators, including those with active government support. The list of key players also includes local giants. Samsung, LG, Hyundai, Daewoo, and others create their own R&D centers and actively support startups. The most promising young companies are nurtured to further absorb into the core company and strengthen it.
On the other hand, promoting innovation in the South Korean economy is considered to be a responsibility of large corporations, as is maintaining the country’s current growth rate.
Korean acceleration programmes
Samsung Accelerator is one of Samsung’s innovation divisions. It invests in early-stage startups, provides capital, access to engineering infrastructure, experts, and mentors. It emphasizes its interest in the independent development of startups but invests primarily in companies that Samsung itself will acquire in the future and integrate into its core business.
Google Campus is one of the 6 global Google campuses. In addition to standard training programs, it holds regular events that connect innovators from around the world. Among the priorities is the creation of permanent communication channels between startups.
Kstartup is one of South Korea’s leading accelerators. It cooperates with AppCenter, Google, SK Planet, and DreamBank. It provides participants with technical, organizational, and administrative support, office space, and mentoring programs.
Sparklabs Global Ventures is an accelerator and venture capital fund that operates not only in Korea but also in the US and Europe, cooperating with Barclays and PayPal. It focuses mainly on early-stage startups, investing between $250,000 and $1 million in each project.
Daedeok Innopolis is also known as the City for IT Professionals. A cluster with more than 20 leading laboratories and more than 40 research centers, its acceleration programs involve world-renowned developers and scientists.
Techstars Korea makes investments into high-growth companies and early-stage founders without any biases towards specific industries. It seeks to help Korean businesses break through on a global scale. The Techstars Korea Accelerator develops and promotes the Korean startup and venture ecosystem by attracting global entrepreneurs and facilitating their exchange.
Bootstrap Labs, founded by a group of successful startups, handles more than 1,000 applications per year from projects of the widest profile. A significant proportion of graduates are creators of new social networks and shopping portals.
The Ventures is one of the leading accelerators that was bought by Japanese investors in 2014 for $200 million. Its accelerator programs do not have a rigid timeline. Startups receive all the support they need for exactly as long as they need to enter the market.
The South Korean ecosystem provides all the necessary conditions for growth and scale. It is a mature, established market with a set of tried and true solutions and tools.
But if you decide to launch your innovative project in the region, make sure to pay close attention to advertising and marketing. You also need to carefully assess the niche where you want to take off.
It is also advisable to be cautious when trying to come up with a new discount app or delivery service. After all, the overabundance of options makes it harder for consumers to notice yet another project. Apart from that, South Korea remains the land of startup opportunities in all other respects.