[VC Now](17) UTC Inbe "When to Stop Blaming the Market... Need to Find Differentiated Ideas"

Kim Donghwan, CEO of UTC Investment Interview
"'Pacemaker' Supporting Startups at Every Stage"
"Can't Just Wait for Interest Rate Cuts... VCs Also Need Differentiation"

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 grow promising companies continue unabated. Asia Economy meets with a variety of investment firms, from large-scale VCs with accumulated experience and know-how to emerging VCs, to hear about their investment strategies and stories.

"Starting a business usually requires about 10 years, or at least 5 to 6 years, and during this period, I believe VCs play the role of a 'pacemaker' who accompanies startups from their founding through each stage of development."

Recently, at the UTC Investment office in Gangnam-gu, Seoul, CEO Kim Dong-hwan explained the essence of VC in this way. Kim said, "About 40% of UTC Investment's portfolio companies have received two or more rounds of investment. Initially, we invest 1 billion KRW, and in the next round, we increase the investment to 2 to 3 billion KRW," adding, "The total amount of 'follow-up investments' accounts for about 50% of the total investment. Cases of three rounds of investment account for about 20% of the total amount."

Founded in 1988, UTC Investment currently manages assets under management (AUM) totaling 820 billion KRW, with the VC sector accounting for 70% of this. Funds established since 2015 have been liquidated, recording returns of about three times the multiple. The cumulative number of invested companies has exceeded 220.

"In Tolstoy's novel 'Anna Karenina,' there is a line that says, 'All happy families are alike; each unhappy family is unhappy in its own way.' From a VC's perspective looking at startups, it's the opposite. There are many different reasons why a company succeeds, but the reasons for failure are generally similar. As a pacemaker with extensive investment experience, I believe that if we can pinpoint and encourage improvement in these areas, significant changes can occur within the company."

Kim Dong-hwan, CEO of UTC Investment. Provided by UTC Investment

"Focusing on Startup 'Team Capability'... Follow-up Investment Continues Only When Trust is Established"

CEO Kim, a graduate of Yonsei University’s Department of Electrical Engineering, is a former IT startup founder. In his twenties, he started a company with a friend that provided services enabling multiple applications to run within a browser. At the time, when installing various programs was frequent, this was a revolutionary service. He said, "We ran the company together for about two and a half years, and through the process of securing loans and investment funds, I encountered the new world of financial markets. As the business model changed, I left the company and then fully entered the investment industry."

After completing an MBA at the University of Chicago, he began his investment banking (IB) career at Good Morning Securities in 2001. He then gained experience at Goldman Sachs and SoftBank Ventures, and in 2018 was recruited as the inaugural CEO of Hana Ventures. He took office as CEO of UTC Investment in January this year.

He introduced that in the startup investment process, he mainly evaluates the 'team's capability.' Kim said, "Team capability can be assessed by focus and immersion in work, understanding of the market, ability to resolve internal conflicts, and investment fund usage patterns," adding, "It is also important how well the team can follow VC advice related to these aspects. Trust in at least three to four team members, including the founder, is necessary."

He continued, "When a company is doing well, follow-up investments proceed smoothly, but the key is when the first investment results are not good. This can happen if predictions about market maturation are wrong or if unforeseen disasters like COVID-19 occur," adding, "if trust in the team remains, we can reinvest."

Industries he focuses on include semiconductors, lifestyle, artificial intelligence (AI) services, and bio sectors. He said, "Exit cases from the semiconductor fund established six years ago have produced notable results this year. Companies like Aegisland and ICTK, which have completed IPOs, are representative examples," adding, "Lifestyle encompasses entertainment, cosmetics, beauty, and food. The Korean-style lifestyle will expand its market overseas in earnest alongside the Korean Wave." He also noted, "Although Korean companies have not yet achieved significant results in investment or talent acquisition in the generative AI field, the number of domestic IT companies seeking service opportunities by utilizing generative AI technology rather than the core technology itself will increase."

Kim said, "Next year, we aim to create about two blind funds, including one related to bio. Bio is currently one of the most challenging markets, but we expect opportunities in terms of returns to gradually arise. Since the manufacturing sector's share in Korea cannot continue to rise, pharmaceutical and bio sectors are markets that existing companies inevitably focus on for new business ventures."

"Domestic VCs Lack Portfolio Differentiation... Need to Discover New Businesses and Ideas"

Regarding next year's investment market outlook, he predicted it would be "more difficult than this year." Kim said, "Until last year, there was optimism about large corporations, but since the second half of this year, even large corporations face growing crisis concerns. Especially, industries like semiconductors and batteries, where Korea traditionally excelled, are faltering," adding, "For venture investment to expand, private capital must come alongside policy funds. Currently, we are at the early stage of a downturn in large corporations, so it will take time until improvement."

Office view of UTC Investment in Gangnam-gu, Seoul. Photo by Kim Daehyun

He also emphasized the VC industry's own efforts. He said, "There are many talks about an 'investment winter,' but the market was abnormally good for five to six years from 2017. Both VCs and startups need to break free from the illusion of the boom period," adding, "the idea that 'problems will be solved when interest rates fall' is nothing more than wishful thinking. In fact, a 3% base interest rate is not high in Korea; it was just too low for several years in the past."

Furthermore, Kim said, "Compared to the size of Korea's economy and startup ecosystem, there are too many VCs, and the biggest problem is the lack of differentiation. VC portfolios are too similar," adding, "when you look at successful startups just before IPO, it is common to see more than 10 VCs listed as investors. Now is the time for each VC to have a clear identity. They need to find differentiated markets or think about new ideas."