‘Korean start-ups still in need of trailblazers’

PALO ALTO, California ― After 20-year-old Pak Se-ri triumphed as the youngest winner of the 1998 U.S. Women’s Open in her rookie year, her success, followed by 24 more tour wins, inspired a wave of young Koreans looking to follow her lead.

Today, Korea dominates women’s golf, as a new generation of players including Choi Na-yeon and Park In-bee ― called “Seri Kids” by the Korean media ― have followed the World Golf Hall of Famer’s footsteps in the LPGA.

Korea’s start-up industry is a lot like the LPGA, according to Tae Hea Nahm, cofounder and managing director of Silicon Valley-based Storm Ventures, which has been investing in Korea since the early 2000s. While nascent now, all it needs is a trailblazer to pave the way.

Storm Ventures cofounder and managing partner Tae Hea Nahm poses during an interview with The Korea Herald in Palo Alto, California. (Elaine Ramirez/The Korea Herald)

“If you assume Koreans are (driven by financial success), competitive and highly motivated to succeed, then if you show a path, people are going to double down and work harder,” the investor told The Korea Herald. “Koreans just need to see a path to success and then it will set off for others to follow.”

Locally, the path for start-ups to go to market is very narrow. Korea’s business-to-consumer and business-to-business channels are dominated by conglomerates such as Samsung, LG, SK and KT, which limits start-ups from doing B2B, security and other services.

That leaves very few areas for success, said Nahm. So start-ups have the best shot of going to market by zeroing in on a “B2C chaebol bypass” ― finding things large corporations can’t do to directly reach consumers.

The gaming industry, he noted, is one of Korea’s greatest examples. After Storm Ventures invested $8 million in Com2uS in 2005, the Korean game company seized the opportunity when the iPhone app store blew open the software market for small players. Com2uS, an early player in mobile gaming, leveraged its hits such as “Tower Defense” and “Slice It!” to expand to the U.S., Japan and China, with 40 percent of revenue coming from the U.S. by the time it was acquired by Gamevil for $65 million in 2013, according to Nahm.

Now Korea has an open ecosystem for new firms to thrive, even in global markets such as China and the U.S. The same “chaebol bypass” strategy is succeeding in e-commerce, with start-ups becoming giants like Ticket Monster, which was acquired by Groupon in 2014, and Coupang, which snagged a $1 billion investment from SoftBank this year.

If Korean start-ups can replicate that success in other industries like security, then U.S. companies would start buying Korean start-ups for a big price, he said. Once that happens, more investors and entrepreneurs will jump into the ecosystem, fueling a virtuous circle.

Their global success will become ever more crucial for the overall economy as traditional chaebol-led business models, based on low capital costs, good manufacturing expertise and a strong local captive market, are outperformed by companies in China, he said.

“Koreans are showing that they can really be the best, like in a lot of creative things like music and sports … so start-ups, to me, are a way of just executing that,” he said. “If you can have someone that becomes world-class through the start-ups, then as certain industries fall you can be creative.”

The challenge, he said, is having more than one-off successes so others can follow. While the Korean government’s initial spending on fostering start-ups has been massive but broad, he believes it is the right long-term direction to first invest modestly in many areas, then find what works and adjust quickly.

After all, he said, investing in start-ups is about playing the odds.

“Sometimes the best way to find the right path is to just send out a lot of missionaries and see what works. And then once one works, Koreans are very good at following and copying them,” he said. “Maybe 1 percent will really succeed and hopefully they become trailblazers.”

For more information, visit stormventures.com.

By Elaine Ramirez, Korea Herald correspondent (elaine@heraldcorp.com)

Start-up Seoul is a series featuring figures in Korea’s emerging tech start-up scene. This is the 18th installment. ― Ed.