Last December, Aileen Lee from Cowboy Ventures identified 39 software startups that have reached valuations of over $1 billion and grouped them under the moniker of The Unicorn Club in her landmark TechCrunch post. Since then, software startups with valuations of over $1 billion are being commonly called “unicorns” in Silicon Valley and worldwide.
Since our firms, Strong Ventures and beSUCCESS, focus on Korean startups, we wanted to share our brief analysis of Korean unicorns. Ten 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).
Coupang, a social commerce company that received a $100 million investment in May 2014 from Sequoia Capital, was estimated then to have a valuation of $1.2 billion. Gmarket, a peer-to-peer e-commerce marketplace, was acquired by eBay Korea in 2009 for $1.2 billion. Gaming companies Com2US, NCSoft and Nexon, and Internet portal Daum are public companies, and we used their market cap valuations on September 10, 2014.
SmileGate, another gaming company is not public, so we multiplied the average price-earnings ratio of Nexon and NCSoft by the reported net income of Smile Gate to estimate the latter’s valuation. Naver, the number 1 Internet portal and search company in Korea, is public, but with the upcoming spin-off IPO of its wholly owned subsidiary LINE, we adjusted the former’s valuation by deducting the latter’s estimated market value. Valuation estimates, recently published in the financial media, were used for Kakao, the most popular messenger app in South Korea, and LINE, the most popular messaging platform in Japan, with both having wide global adoption.
Some learnings from the Korean Unicorn Club:
- Korea is good at software: Many have said that Korea is only good at hardware (think Samsung and LG). However, the data we have gathered shows that that is simply not the case. Koreans have proven they can make good software with great monetization.
- Gaming is clearly a Korean specialty: Four out of the 10 unicorns are gaming companies (Com2us, NC Soft, Nexon and Smile Gate).
- E-commerce is rising as a top category: E-commerce startups have been rising fast recently. While Coupang and G-Market are the only ones that make it into the Korean Unicorn Club, other social commerce companies like TicketMonster (acquired by Living Social first and then by Groupon) and WeMakePrice, and mobile delivery app startups Woowa Brothers and Yogiyo are not far behind.
- Local players lead the local market: It is widely known that Internet giants Yahoo and Google have not been able to establish meaningful market share in the Korean search/Internet portal markets. Yahoo eventually gave up altogether in 2012, and Google is only now gaining some traction, far behind the local players, Daum and Naver. Similar local leadership by local companies is seen in most other tech segments.
- SNU and KAIST are the Stanford of Korea: Out of the 10 unicorns, at least five have founders from Seoul National University and KAIST. In fact, it goes even deeper. In the case of Naver, Nexon, NC Soft, Kakao, and LINE, the founders are all close friends who went to school together.
- B2B SaaS unicorns are non-existent: All the Korean unicorns are consumer Internet startups, and there is little evidence of an enterprise giant on the horizon.
- Messaging apps rule: The Korean unicorns that have grown the fastest and that have reached the highest valuations are messaging platforms Kakao and LINE.
Our assessment is that the South Korean tech ecosystem has passed the tipping point, and we estimate that within the next five years, another 10 unicorns can come out of Korea. This amazing feat is thanks to a dramatic increase in the quality of founders and a rise in the global scale of their ambition. In addition, the South Korean government’s immense support to startups, through venture capital infusion and a plethora of entrepreneurship programs, and the tireless efforts of many organizations and individuals, has led to a startup boom that looks set to continue into the future.
John Nahm is cofounder and managing director of Strong Ventures, a seed fund focusing on supporting Korean startups and founders, and bridging Korea and Silicon Valley. You can follow him on Twitter @john_nahm. Kihong Bae of Strong Ventures, James Jung of beSUCCESS, and Nathan Millard of beSUCCESS also contributed to this story.