[Startup Struggle ③-1] Startup Growth Partner 'VC'

Betting on Passionate and Promising 'Tteok-ip'... Early Discovery of Idea and New Technology Startups

Domestic venture capital (VC) firm Bon Angels Venture Partners invested a total of 300 million KRW in mobile application developer Woowa Brothers in two rounds in April and July 2011. This was part of a plan to discover promising companies early amid the smartphone boom that saw many startups emerge. Kang Seok-heun, CEO of Bon Angels, met with Kim Bong-jin, CEO of Woowa Brothers, weekly to offer advice and also arranged meetings with other founders. They provided practical support for company operations, including finance, legal affairs, and public relations. Eight years later, Bon Angels earned about 1,000 times the return on this initial investment. Delivery Hero, which acquired Woowa Brothers, valued Bon Angels' equity at 299.3 billion KRW.

Bon Angels' investment in Woowa Brothers is a representative case demonstrating the role and potential of VCs in discovering and nurturing startups. Early-stage VC investments have served as nourishment for startups to grow into unicorns (unlisted ventures valued at over 1 trillion KRW) in less than a decade, and the investment returns gained have become resources to support new startups armed with brilliant ideas and new technologies. In other words, early-stage VC investments have played the role of seeds (SEED) in building a virtuous cycle startup ecosystem.

We visited Altos Ventures, one of the leading VCs investing in domestic startups. Observing the actual investment process, we experienced the vivid scenes of discerning VCs searching for promising 'buds' and startups striving for early-stage investments. The most important factor was the unique business will of the startups. VCs decide to invest by watching the founders' efforts to turn mere ideas into reality. An Altos Ventures representative said, "No matter how good the idea is, startups inevitably lack in all aspects such as technology and marketing compared to established companies. The goal of VCs is to carefully select startups with strong will and passion to overcome the inevitable challenges."

◆Discovering Startups and Networking = Altos Ventures announced at the end of last month that it invested 3 billion KRW in CreateTrip, a startup operating a platform providing domestic travel information to foreign tourists. The beginning of this investment dates back to late July 2019, five months earlier. Altos Ventures first learned about CreateTrip during a meeting with Base Investment, another VC investing in startups. Interest was partly coincidental. Altos met Base Investment's partner Kang Jun-yeol and director Kim Seung-hyun separately, and both mentioned CreateTrip's potential. Altos immediately requested an introduction and met with CreateTrip CEO Lim Hye-min.

Starting in mid-2016 by supplying domestic travel information to Chinese-speaking travelers, the company provided detailed information enabling foreign tourists to travel Korea like locals. Within three years, it surpassed 300,000 cumulative booking users and was gaining market recognition with 1.7 million monthly visitors. Additionally, the number of members and monthly users increased more than fourfold and twofold respectively compared to the previous year, showing rapid growth.

For Altos Ventures, CreateTrip had relatively clear strengths and weaknesses. The weakness was that the company was still little known and not yet profitable, resulting in a shortage of personnel. Consequently, the pace of service improvement was not as fast as the company's goals. The strength was the increasing number of foreign tourists each year and the growing market size. Especially, gathering travelers of various nationalities on one service is more difficult than expected, but CreateTrip had already built a service used by 1.7 million monthly users, which was judged to be a competitive advantage.

Altos Ventures partner Park Hee-eun analyzed, "CreateTrip is rapidly capturing the market with differentiated services in the domestic inbound travel market, which recorded 17 trillion KRW in 2018." Altos Ventures believed that the clear strengths and the personnel shortage, which could be resolved with VC support, made CreateTrip a promising investment. The startup simply lacked opportunities to meet diverse talents, but once investment was made and hiring began, sharing the management's vision would solve the problem.

◆The Deciding Factor Was 'Passion' = The process of deciding on an investment of tens of billions of KRW was not easy. There were many cases in the market where investment funds could not be recovered. At the time, Altos Ventures internally had opinions to slow down due to the rapid pace of investments in 2019. Moreover, CreateTrip was at an earlier stage than the typical startups Altos Ventures usually considers.

The investment decision was made through continuous discussions with CEO Lim Hye-min. Besides indicators showing a large market and growing service, Altos Ventures highly rated Lim's passion and tenacity in analyzing the market well. Once Altos Ventures decided, "We want to work with CEO Lim and watch the company's growth," they proceeded with the investment without hesitation. Partner Park Hee-eun said, "We expected CreateTrip to become an industry leader with services tailored to foreigners' tastes."

There were challenges during the investment process. Other VCs also wanted to invest, some offering better terms than Altos Ventures. This led to situations where VCs courted and persuaded the startup to join them. Just before the investment, Altos Ventures introduced CEO Lim to Lee Dong-geon, CEO of MyRealTrip, and Kim Bong-jin, CEO of Woowa Brothers, both startups invested in by Altos Ventures. This was to enable Lim to interact and learn from those who had already walked the path from startup to unicorn. After receiving the investment, CEO Lim said, "The number of foreign tourists visiting Korea is rapidly increasing every year, emphasizing the importance of information. We will strive to become the travel platform that foreign visitors think of first and the best in all areas of domestic inbound travel."

The core of startup investment confirmed in the CreateTrip case can be summarized as 'problem-solving ability.' CreateTrip saw the need to solve the 'problem' of the lack of a proper information platform in the growing domestic foreign tourist market. Altos Ventures judged that this problem created a market and that CreateTrip had the ability and passion to develop solutions. To receive investment, startups must appeal their problem-solving ability and determination to investors. Advice from startup veterans aligns with this. Choi Jung-i, CEO of Ghost Kitchen, a shared kitchen startup that raised over 10 billion KRW last year, emphasized, "Early-stage companies must show strong will to solve problems and gain investors' trust that they will solve them. It is crucial for startups to demonstrate how much mission they have toward the problem they want to solve and prove it to investors."