[Future Unicorns Leaving Korea]①Rejected 150 Times, Ultimately Headed to the US... Gave Up on Korea Despite Interest from Samsung and LG

AIbiz: "We Held 150 IR Sessions, but Every Korean VC Turned Us Down"
Series of Investment Offers in the U.S.... Foundation for Business Expansion
Startups Seeking Survival Abroad Have Increased Sixfold in a Decade
After Conglomerates, Deep Tech Startups Are Also Flocking Overseas
Advanced Technology and Top Talent Flowing Out... Urgent Need for a Major Overhaul of the Venture Ecosystem

Editor's NoteThere is a growing call for an urgent transformation of the Korean venture ecosystem. Critics argue that the Korean venture capital (VC) industry and stock market are failing to nurture future unicorns (unlisted startups valued at over $1 billion), resulting in a breakdown of the virtuous investment cycle. In fact, the domestic startup market has been on a downward trajectory since peaking in 2021. This is because startups with unicorn potential are increasingly seeking opportunities abroad. As a result, Korea's future growth engine is at risk of shutting down. In this five-part series, we examine why Korean startups are leaving the country, what is driving this trend, and how conglomerates and the government should respond.

"We held more than 150 investor relations (IR) sessions, but not a single investor committed to funding us."

Despite receiving interest from global companies as well as major Korean conglomerates such as Samsung Electronics and SK hynix, there is a startup that ultimately failed to secure domestic investment and moved overseas. That company is AIbiz, an industrial artificial intelligence (AI) specialist. Founded in 2020, AIbiz relocated to the United States in 2023 after failing to gain recognition for its technological value in Korea. Since then, the company has attracted investment from American investors and has experienced rapid growth.

Startups, which are vital for future growth, are leaving Korea. An increasing number of companies are engaging in so-called "flipping," relocating their headquarters overseas after struggling to attract investment despite establishing legal entities in Korea. Some even choose to set up abroad from the outset. This is because countries like the United States, China, and Japan offer more favorable startup investment environments, have larger markets, or make initial public offerings (IPOs) relatively easier. As more Korean startups move overseas, concerns are mounting about the outflow of top talent and the erosion of the domestic startup ecosystem.

"VCs Failing to See Future Value"?Deep Tech Startups in Frustration

Ha Seungjae, CEO of AIbiz (pictured), launched the company in 2020, focusing on technology that enhances manufacturing process efficiency using AI. He identified semiconductors as the market where AI adoption would have the greatest impact. At the time, Korea's foundry (semiconductor contract manufacturing) industry was struggling with low yields (the proportion of good products among finished goods), lagging far behind world leader TSMC of Taiwan with yields of just 15-20%. Recognizing the market potential, he began developing AI models specialized for semiconductor processes. He was confident, having spent decades in factories and thus deeply understanding on-site needs, as well as having acquired expertise through graduate studies at the master's and doctoral levels.

Ha Seungjae, CEO of AIbiz. AIbiz

However, reality was harsh. Even after one or two years post-launch, there was no progress in attracting investment. Using government startup support programs such as the Pre-Startup Package, Early Startup Package, and Startup Leap Package, he conducted more than 150 IR presentations to VCs, but not a single investor stepped forward. Ha recalled, "No matter how much I explained to VC analysts, they kept asking, 'What differentiates your technology from other IT companies?' Industrial AI is fundamentally different from generative AI in that it must incorporate domain knowledge and be tailored to field-specific solutions, but they kept evaluating our technology using the same criteria as generative AI."

Even though AIbiz had won the IR52 Jang Youngsil Award?a prize given to companies with outstanding new technology products and research achievements?it was powerless in the face of a risk-averse venture investment industry. Ha said, "One VC expressed interest and requested a proof of concept (PoC). After we completed it, they kept moving the goalposts, saying, 'We'll fund you if you win the PoC competition, if you succeed in pilot operations, if you generate revenue,' and in the end, we never received any investment."

The difficult times dragged on. There was no immediate revenue, yet the need for R&D personnel only grew. Employee salaries began to fall behind. Ha had to borrow money from family and friends, and eventually took out a loan using his personally owned apartment as collateral. He scraped together government grants and loans from the Korea Credit Guarantee Fund to survive month by month.

During this period, AIbiz completed its semiconductor process-specialized AI platform, "Dutchboy," and launched it in both domestic and international markets. The company gradually expanded its client base to include major Korean conglomerates such as Samsung Electronics, SK hynix, LG Innotek, and SEMES (a Samsung Electronics subsidiary), as well as American customers. It was around this time that Ha began to dream of entering the U.S. market.

Unlike in Korea, the U.S. market recognized higher corporate value, and local investors made decisions based solely on technological capability. To seize new opportunities, Ha established a separate U.S. entity, "AIbiz Global," in Silicon Valley in 2023. He shared, "In the U.S., even though we had no revenue yet, there were many investors willing to invest based on the future value of our technology. Unlike in Korea, there was no demand to present contracts with conglomerates, which felt much more reasonable."

"No Hope in Korea"?Startups Head to China, Japan, and Southeast Asia

The United States is not the only destination for startups leaving Korea. Once a solid startup hub in Asia, Korea has long since lost that status. The pace at which domestic startups are moving to China, Japan, and various parts of Southeast Asia is accelerating.

According to venture investment information provider TheVC, as of May this year, there were 203 startups headquartered overseas, a roughly sixfold increase compared to 32 in 2014. The number of startups with overseas headquarters continues to rise each year, from 139 in 2020 to 186 last year, with more than 20 added just this year.

Allganize, a large language model (LLM)-based all-in-one solution company, is an example of a company that moved its headquarters to Japan. Allganize established its Japanese subsidiary, Allganize Japan, in Tokyo in 2019 and then fully relocated its headquarters there in 2021. As of the end of last year, more than 60% of its revenue came from Japan, having secured major clients such as Tokyo Metro and Sumitomo Mitsui Banking Corporation (SMBC). Online marketing specialist Kauli Oblis and mobile advertising marketing company Huadong Media are headquartered and operating in China.

The reasons for relocating to Japan or China are straightforward: growth potential. In China, the government actively supports startups, resulting in a hot startup market with more than 200 unicorns (unlisted companies valued at over 1 trillion won). In Japan, unlike Korea's frozen IPO market, the Growth Market?Japan's equivalent of the KONEX market?is well established, making it relatively easy for venture companies to go public. Recently, Upstage, a generative AI company, established a Japanese entity following its entry into the U.S. market.

Although the number of startups moving abroad increases every year, the government still lacks accurate statistics. KOTRA compiled data on overseas expansion by startups up to 2022 but has since stopped. As dissatisfaction with the domestic startup ecosystem grows and more cases of overseas relocation emerge, the Ministry of SMEs and Startups, the relevant government body, has only recently commissioned a study to investigate the reality of startup flipping.

Lee Jeonghee, a professor in the Department of Economics at Chung-Ang University, believes that the VC industry's focus on profitability has fueled the flipping trend. He said, "What matters is how well VCs can assess the potential and value of their investee companies, which is the essence of VC competitiveness, but currently, they are only pursuing low-risk investments. As a result, value investing?making investments based on technological capability?is weak because profitability is the only focus."

He added, "The government should consider providing incentives when VCs take on risk by setting various investment criteria. There should also be standards to ensure that the Korea Fund of Funds does not focus solely on short-term results by thoroughly analyzing VCs' past investment records."

Seong Changsoo, a professor in the Department of Technology Entrepreneurship at Dongguk University, advised that accelerators (ACs) that discover and nurture early-stage startups need to become more active to encourage VC investment. He said, "If ACs can identify and validate startups with strong technological capabilities at an early stage, this could attract more VC investment. It is necessary to ease regulations on ACs and provide institutional support."