[VC Now] ⑬ Wadiz Partners "Focus on Lifestyle Small Brands"

Sogangseop, CEO of Wadiz Partners Interview
"Wadiz is a Startup Investing in Startups"
Investing in Companies with 'Scale-up Progressiveness'

Editor's NoteVenture capital (VC) nurtures early-stage companies that will become the pillars of future industries at the forefront of the capital market. Although the VC industry is experiencing a downturn due to the global economic recession and high interest rates, efforts to identify and cultivate promising companies continue unabated. Asia Economy meets various investment firms, from large-scale VCs with accumulated experience and know-how to emerging VCs, to hear about their investment strategies and stories.

"Wadiz Partners has a sharper and clearer investment strategy and target compared to other venture capitals (VCs). It can be summarized as 'early-stage investment in small lifestyle brands (small and medium promising brands).'"

On the 14th, So Gang-seop, CEO of Wadiz Partners, was interviewed by Asia Economy at the Wadiz Partners headquarters in Seongnam-si, Gyeonggi Province. [Photo by Wadiz Partners]

This is what CEO So Gang-seop said during a recent meeting at the Wadiz Partners headquarters in Pangyo Techno Valley, Seongnam City. Wadiz Partners is an investment subsidiary of the Wadiz platform, which pioneered the domestic private crowdfunding market. Since its launch in 2020, it has achieved remarkable success, including securing the status of a general partner (GP) for the newly established 'Lycon (Lifestyle and Local)' sector by the Ministry of SMEs and Startups this year, marking its first challenge in the official fund-of-funds investment project.

CEO So stated, "The Wadiz platform is a startup that invests in startups. We want to not only achieve financial results but also solve startups' challenges together and create new markets."

"Strength of Utilizing Wadiz Platform, Which Attracts K-Beauty Indie Brands"

CEO So worked in corporate finance at the Korea Development Bank for about 15 years since 2007. He officially entered the VC industry upon joining Wadiz in 2022. He said, "At the Korea Development Bank, I mainly participated as a project financing (PF) lender in policy financial institutions, carrying out rewarding work related to the national economy. Joining Wadiz Partners was driven by CEO Shin Hye-sung's vision of 'creating a world where anyone can challenge.' For small companies, even a few hundred million won is a very large investment. I wanted to participate in nurturing early-stage companies through financial support."

Wadiz's mission is derived from the Arabic word "wadi," meaning a river in the desert. It signifies providing a stream of resources for startups in a harsh capital market. Accordingly, each meeting room in the company is named after rivers such as Niagara, Thames, and Hangang.

Wadiz Partners focuses on early-stage investments in lifestyle small brands. This strategy differs from other VCs that concentrate on semiconductor and tech investments chasing higher returns. The biggest strength of their investment strategy is the ability to utilize data from the Wadiz platform.

CEO So explained, "About 2,000 new projects open monthly on the Wadiz platform, which even overseas merchandisers (MDs) pay attention to. We have secured opportunities to preempt good brands." He added, "Looking at the rapidly growing K-beauty market alone, domestic indie brands with high overseas attention flock most to the Wadiz platform. Last year, 1,500 beauty projects were launched here, and 700 to 800 of them were completely new brands."

Since the second half of 2022, the investment program 'Next Brand' operated by Wadiz has also been a strength. Wadiz has created a value chain to nurture small brands through collaboration with its incubating subsidiary Wadiz X and its education and government project subsidiary Wadiz Impact. Notably, Wadiz Partners was selected as the GP for the newly established Lycon fund in the first round of the fund-of-funds investment project in February this year. Lotte Home Shopping participated as a limited partner (LP) and strategic partner. CEO So said, "Our sharp investment sector and differentiated management strategy seem to have made us more persuasive. Moreover, with Lotte Home Shopping participating as an investor, connecting home shopping to scale up startups, a positive function of mutual verification of the same investment target was created."

Another feature of the fund is its linkage with the Ministry of SMEs and Startups' entrepreneur-type small business loan support program, 'LIPS.' LIPS provides policy fund loans at low interest rates up to five times (500 million won) the investment amount after private pre-investment. Through this, Wadiz Partners' total assets under management (AUM) have expanded to about 15 billion won. The entire portfolio consists of about 44 companies, and the 18 companies invested through the Next Brand program have a 100% survival rate.

A representative example is Digging Me International, which operates the German bedding brand 'Foren' and completed seed investment last year. CEO So said, "We saw no absolute leader among bedding brands matching recent trends, but Foren expanded its products and, after receiving investment from Wadiz Partners last year, became a company generating about 3.2 billion won in sales." He added, "It already exceeded last year's sales in the first half of this year. It is expected to become one of the leading bedding brands in Korea."

(From the top left, clockwise) Rainworks, an ultra-light carbon material umbrella brand by Normalist; Hyperlit, a street outdoor fashion brand by 210 Company; and Foren, a premium sleep tech brand by Digging Me International.

210 Company, a fashion firm, is a fashion startup that attracted investment by ranking overwhelmingly first on the Wadiz platform. CEO So introduced, "After receiving seed investment under the existing brand '210 Edit,' they also launched a new brand called 'Hyperlit.' They recorded sales in the 2 billion won range last year and have already achieved the same amount in sales in the first half of this year. They are now expanding their market beyond online to offline."

'Normalist' owns the sunscreen brand 'Suntique' and the umbrella brand 'Rainworks.' CEO So said, "It is a startup that started with the concept of protecting people from sunlight. Rainworks' ultra-lightweight umbrella and parasol combo product using special materials sold about 1.7 billion won as a single product on Wadiz," adding, "With strengths in branding and ideas, it is a startup expected to maintain continuous growth."

Wadiz Partners is also building exit cases. They invested about 500 million won in 2020 in '21gram,' a pet funeral specialist company, and sold it to another company in 2022, recovering 1.2 billion won. This was a performance with an internal rate of return (IRR) of about 80%.

"Selecting Startups Amid Recession... Aiming to Form a 10 Billion Won Fund Next Year"

Regarding recent investment market trends, CEO So said, "The late-stage investment market has become more conservative than before. It is very difficult to attract additional investment if current profits are not being made," adding, "On the other hand, interest in the early-stage investment market has increased. More large houses are supporting GP roles and forming related funds. At the same time, many inquire to Wadiz Partners to introduce good startups or propose co-investments."

He said, "The impact of high interest rates and future rate cuts on Wadiz Partners' investment activities seems minimal. Most of the companies we invest in are consumer goods companies, so they are more affected by business conditions and the economy than interest rates," adding, "Currently, I judge the economy to be very poor, but we are trying to turn this into an opportunity to select the best companies at better valuations."

He continued, "We hold monthly investor relations (IR) meetings and plan to invest in 6 to 7 companies this year," adding, "Additional fund formation will also be necessary. Our current goal is to create a 10 billion won fund next year and continue follow-up investments."

Furthermore, CEO So said, "We mainly look at teams with high scores on the Wadiz platform, but the core is the ambition for scale-up (business expansion)," adding, "we check whether there is a spirit to truly grow into a proper company through scale-up."

"There are quite a few cases where the product and brand are excellent, but they say, 'We only want to do this much.' However, Wadiz Partners, as a VC, must return investment profits to LPs. We can only invest in companies that have the ambition to grow into companies generating 50 billion won, 100 billion won in sales, not those satisfied with current sales of 5 billion won. Creating such virtuous cycles is why we do this work."

Sokangseop, CEO of Wadiz Partners. Photo by Daehyun Kim kdh@