Was 2016 The Worst For South Korea’s Startups? Survey Says Nope

Press release (Jan. 6):

2016 was a wild ride in so many ways, and that was no less true for South Korea’s nascent startup scene. Slowing economic conditions, a cut in government funding for local venture capital firms and wave of Silicon Valley down rounds loomed like dark clouds at the beginning of the year to send jitters through local investors’ spines.

Then, local unicorns, or startups with over $1 billion valuation, came under scrutiny: Ecommerce giant Coupang, which had raised a record $1 billion from Softbank the year before, was criticized for its massive operating losses while building out its rapid-delivery infrastructure. Yello Mobile, a startup holding company that earned a $4 billion valuation in 2015, took four loan investments last year but its valuation never budged, leading to increased suspicion as it reportedly streamlines ahead of an IPO.

And Korea saw the first casualty of its most promising startups, as the $18 million-funded Beatpacking Company closed its 3-year-old music streaming service Beat in November owing to mounting royalty expenses without a clear profit model.

Yet when the clouds parted, things weren’t so bad at all. Thanks in part to a last-minute frenzy of activity in December, we found a sprawling garden of newly funded startups, with some leaders strengthening their roots with fresh investments. If we exclude Coupang’s record investment in 2015, last year was the best yet for funding Korea’s modern generation of startups, and investors are eager about thriving new industries like fintech, cybersecurity and health tech.

Excluding Coupang's investment in 2015, last year was the best yet for Korea. Data: The VC. Graphs: Ryu Ji-min.

Strong get stronger

“For us, the amount of capital we invested [in Korea] was larger in 2016 than 2015. We expect 2017 to be similar,” said Han Kim, Seoul-based partner of Silicon Valley’s Altos Ventures. “Additionally, we doubled down on several companies in growth rounds.”

His venture capital firm, backed by foreign investors, is a barometer for increasing global investments in Korea’s startup scene. They make up for the gap created by nascent local VCs with low spending power. His portfolio companies, including Woowa Brothers (the creator of food delivery app Baedal Minjok), fintech startup Viva Republica and cosmetics subscription startup Memebox, were all some of the hottest startups of 2014-2015 that continued to shine:

Rising startups like Memebox and Woowa Brothers (creators of Baedal Minjok) continued to power through 2016 with fresh investments. Data: TheVC. Graphs: Ryu Ji-min.

The biggest funding rounds are usually backed by global investors, who bridge the gap of local venture capital firms' low spending power. Data: TheVC. Graphs: Ryu Ji-min.

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