Invest KOREA

Lee Won-jae, Head of Asia Pacific and General Partner of Israeli venture capital firm, The Yozma Group, shares his experience doing business in Korea and the potential of Korea’s technology to impact the world.

Israeli venture capital firm The Yozma Group, established its Korean branch in 2015 with the vision of replicating the same kind of start-up success that Israel has seen over the past couple of decades.

Lee Won-jae, who spent most of his life in Israel, moved to Korea four years ago to serve as the head of The Yozma Group Korea after being impressed by the country’s technological and innovative capabilities. Mr. Lee sat down with KOTRA Express to share his experience doing business in Korea and the potential of Korea’s technology to impact the world.

Please tell us about The Yozma Group and its history. What kinds of services does the firm offer?

Yozma is the first venture capital firm in Israel. To put it more precisely, Yozma is the first “fund of funds.” A fund of funds refers to a fund that invests into other funds or VCs. It was first established in 1993, and we initiated the fund with 40 percent of it coming from the Israeli government and 60 percent from global investors.

It’s also important to understand what was going on in Israel in 1993. Israel is a relatively small country with a small market, and the Gulf War was also taking place at the time, leading to a shortage of jobs. In the 1990s, two of the most important tasks for Israel were to create jobs and grow technology-based startups. Yozma’s founder and chairman, Yigal Erlich, was a chief scientist, equivalent to being Israel’s deputy minister of industry and trade, and was in charge of R&D and investing in technology-based companies. Mr. Erlich created incubating programs for tech companies, and the government was managing over 24 technology incubators throughout the country with the purpose of commercializing Israel’s technology in the form of startups and ventures.

What’s amazing is that Israel started with R&D, but did not end with R&D. Israel came out of this as the greatest success in startup history. Sometimes, countries start with R&D and end with R&D, as in, there are no outputs. But Israel, which was in dire need of jobs and technological commercialization at the time, was focused on producing tangible results.

In 1993, Yozma invested in a slew of technology-based companies, and these companies had great success, with 23 of them making their way to the NASDAQ. Today, there are 92 Israeli companies that are listed on the NASDAQ. Israel ranks No. 3 in the world for the number of companies listed on the NASDAQ, after the U.S. and China. Now, if you compare the sizes of these three countries, Israel has a population of only about 8 million, while the U.S. and China are among the largest countries in the world. This demonstrates how Israel utilized innovation and entrepreneurship to overcome the challenge of the shortage in jobs and tech companies. .

The Yozma Group manages venture capital funds, and we are currently managing seven technology incubators in Korea, which we refer to as Yozma campuses, as well as a fund to invest into technology companies in Korea. In 2013, Mr. Erlich started looking into the Korean market and saw that there’s a lot of potential and opportunities for Korean tech companies, because Korean technology is really amazing. He envisioned that Korea could follow in the footsteps of Israel to commercialize its technologies.

What made Yozma establish a branch in Korea and what are the advantages of doing business here?

First of all, the reason we chose Korea is because of Korean technology. On our previous visits here, we were very impressed by the technologies of the Korea Advanced Institute of Science and Technology (KAIST) and Ulsan National Institute of Science and Technology (UNIST), especially those related to the fields of bio, healthcare, medical devices and cybersecurity. We saw great opportunities there and thought, if we commercialize these technologies through startups and ventures, we would see great success. Since most of these technologies are still in R&D, we came here to commercialize the outstanding ones that have potential to succeed in the global market. That’s why we started not with a fund, but by building seven technology incubators. We saw that commercializing, incubating and accelerating tech-based companies are more important than simply just investing in them.

Here’s a real-life story. When Mr. Erlich came to Korea a few years ago, he met the founder of a Korean company called CyWORLD, which is a social media platform that was incredibly popular among the 50 million people of Korea. CyWORLD’s founder was explaining the service, talking about the “acorns” which are a form of cyber currency, similar to bitcoin today, with which you could buy background music for your page and so on. I still remember the expression on Mr. Erlich’s face while he was listening; he was absolutely impressed and astonished. He went on to tell the CyWORLD founder, “Sir, if you had taken this platform to the global market from the get-go, Facebook may not exist today.” Korea, even ten or so years ago, was already very advanced in its technology.

Also, I’m sure you’ve heard of one of the greatest unicorns in the world, called Skype, an Internet telephone. Did you know that there was already a service similar to Skype in Korea called Dialpad? This company was actually established a few years before Skype. But Dialpad started and operated in the domestic market, and later ended up going bankrupt. I’d like to think that if Dialpad, like CyWORLD, ventured out into the global market, perhaps it could have reached the success of Skype. Korea also had something similar to an iPod before Apple, called iRiver, which came out years before the iPod did. And let’s talk about Google. Did you know that Naver was founded one year before Google? And YouTube. Did you know that Korea had something like YouTube called Pandora which was founded before YouTube? And as you may know, YouTube was eventually acquired by Google.

Have you heard of a navigation app called Kim Kisa? Around the time Kim Kisa was founded, there was a similar app in Israel called Waze, and Yozma’s drop down fund actually invested in Waze. When I came to Korea in 2014, I saw big headlines that read “Kim Kisa acquired by Daum Kakao,” for KRW 62.6 billion (approx. USD 55.6 million). The two apps are almost identical in their navigation functions, but Waze was bought by Google Israel for about USD 1 billion. The two companies have the same business model, yet there’s a huge difference in valuation. I believe that if we give Korean companies a global network, there’s huge potential for the future. Waze was successful because it went global from the start, to the U.S. and Europe. But Kim Kisa, it remained and is still here in the domestic market.

Korean people always say, “Korea needs to become a first-mover.” But the reality is that Korea already is a first-mover. All of these great technology-based companies and products came from Korea, albeit remaining in the domestic market. Now, if we suppose that these companies went to the global market sooner, they may be in the place of today’s Facebook, Google, YouTube, and so on.

What are some of the main sectors or characteristics of Korea that Yozma focuses on?

Currently, the global technological trend is pointing to bio, which is an incredible sector encompassing things like medical devices, healthcare, etc., that Korea is really good at. We actually refer to Korea as “Bio Korea.” We’re focusing more and more on Korea’s bio industry, which are mainly located in the areas of Osong, Pangyo and Cheonan, and we’re currently working with hospitals, institutes and bio R&D centers across the country. Long ago, the Korean government decided to invest in, promote and support the bio sector. Since private investors typically don’t like taking big risks, the government has been making efforts to produce visible results in this area. It’s a difficult sector because it takes a long time and a lot of money to develop. Regardless, fields related to anti-cancer, immunology, diabetes, etc. are growing in importance and many people are focusing on health and well-being. Bio is increasingly developing through smart, digital healthcare. Everything is interconnected, and we are seeing more and more technological convergence. Bio is being linked to AI, big data and blockchain; medical device and IoT companies are associating themselves with the bio sector and are getting involved in things like clinical trials. Unlike in the past, we are now leaning more into the convergence of industry and technology. Everything goes together now, and global investors are shifting focus toward Korea’s bio sector.

Were there any challenges your firm faced while doing business in Korea?

When we first came to Korea, deal sourcing was hard for us, but within the past four years, we’ve forged numerous partnerships and MOUs with the Korean government, ministries, organizations, institutes, hospitals and other investors, which have helped us build our deal sourcing capability.

Also, in those years, we were able to establish our own technology incubators throughout various local authorities in Korea, including Daegu-Gyeongbuk, Cheongna, Seoul, Pangyo, Cheonan, etc., which helped a lot. So, these were our challenges, but I’d say that we’ve successfully overcome them. We received a lot of help from our partnerships in establishing our incubators, to deal sourcing, to discovering businesses.

What Korean companies/government agencies do you work with to strengthen your business partnerships?

Well, Invest KOREA, in particular, offered us accounting and legal advice as it’s very difficult to start a business in a foreign country of which we don’t know much about. Especially for companies like us, it’s not easy to deal source and operate the business amidst all of the regulations we need to follow. The experts there gave us good guidelines for starting our business, and we were able to save a good amount of time, energy and capital in the process.

On top of KOTRA, other ministries in charge of their respective fields also offered us help. The Ministry of Health and Welfare supported us as we were working with the bio sector, and the Ministry of Trade, Industry and Energy connected us to the technology sector, giving us a deal flow.

We also work with hospitals, R&D centers and other agencies, and day by day, year by year, we are expanding our partnerships, especially with universities and R&D centers, because for us, partnering with them is vital for deal sourcing, which further leads to good deal flows for our fund.

What are some future plans that Yozma has when it comes to doing business in Korea and in Asia?

We have Yozma Group Asia in Hong Kong, as well as branches in Singapore and Japan, and one of our main goals is to form tight links between our entities across the continent. Naturally, having a solid alliance between our locations in major cities around Asia will help us further support one another as we do business in our respective countries.

Also, we plan to utilize our expertise to bring in follow-on investment, which will give Korean companies a global network and lead to strategic investment. Our goal is to bring in follow-on, strategic investment to those companies after our own investment into Korea, so they can expand to other countries.

What is Yozma doing to rise above the competition in the Korean VC and startup market?

We’ve only been in Korea for four years now, so we’re definitely not on the same level as the local Korean VC firms since some of them have been here for over 20 years. That’s why we have great partnerships with the local firms, because they have solid deal sourcing and deal flows as well as information and a deep understanding on the companies here.

Yozma, on the other hand, has a great global network. We’re well connected to tech-based companies in Israel and Silicon Valley. Because of our offices around the world and our network in Asia, we can collaborate with local VC firms to conduct co-investment into certain companies. Korean VC firms can help those companies succeed in the domestic market, while Yozma can match them to Israeli or Silicon Valley tech-based companies to help them venture out in to the global market. It’s a win-win collaboration. I believe that these are the type of partnerships we can best utilize to help everyone involved succeed.

Two years ago, when Mr. Elrich came to Korea and met with founders of various companies, he said this to me at the airport before catching his flight back to Israel. He said, “Wonjae, when I see Korean companies, Andersen’s The Ugly Duckling comes to mind.” When foreign investors see Korea’s small and beginner, yet innovative and brilliant companies, they don’t see an ugly duckling, but they see a remarkable swan. What’s unfortunate is that these Korean companies view themselves as ugly ducklings, making them resort to staying in the domestic market. Global investors, on the other hand, see the massive potential for success these companies and their technologies have if they just had the opportunity to enter the global market. On that note, Yozma will continue on its journey, or its project to find these swans, because if we search hard enough, we can discover the plenty of swans that Korea has to offer the world.

By Grace Park (gracepark@kotra.or.kr)
Executive Consultant
Investment Public Relations Team / Invest Korea
Korea Trade-Investment Promotion Agency (KOTRA)