31 Oct 2022

Chua Kee Lock, CEO of Vertex Holdings

Achieving international ambitions with a global VC partner

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Startups are synonymous with large-scale disruption of almost every industry in the world. This is due in part to rapid digitalisation and widespread interconnectivity, which has allowed startups to scale quickly at a global level and amplified the impact of their offerings. As a result, many are now adopting a global mindset and incorporating international expansion into their roadmap – including South Korean startups.

A leading hub for innovation and technology, South Korea is home to no less than 23 unicorns and hundreds of other promising startups, and this vibrant ecosystem is showing no signs of slowing. In 2021, venture investment in Korean startups grew 78 percent year-on-year to over USD 6.4B. This year, the capital city of Seoul also broke into Startup Genome’s top 10 cities in the Global Startup Ecosystem rankings for the first time, setting a record high of USD 3.5B in startup investment.

Historically, South Korean startups have largely focused on the domestic market due to sufficient local demand and a highly supportive environment. However, as more local and foreign startups begin to enter the ecosystem, many South Korean startups are beginning to explore the untapped international opportunities. This shift is actively supported by the South Korean government, but many startups still face hurdles in entering foreign markets due to market unfamiliarity and inexperience.

Successful international expansion requires a deep understanding of the market, local connections, and growth capital. This is where collaboration and partnership with a global venture capital (VC) firm can be a turning point for South Korean startups with international ambitions. Global VCs often have an extensive network and deep expertise not only within a particular industry, but also in the markets where they are present, making them well-positioned to help startups achieve global success.

The challenges of international expansion

South Korea has been highly successful in building one of the world’s most vibrant startup ecosystems, especially with the Ministry of SMEs and Startups’ tech startup platforms, favourable tax and regulatory environment for startups, as well as acceleration programs designed to attract foreign talent and companies to develop South Korea as the leading startup hub. As a result, many local startups were content to focus on the domestic market until relatively recently. New market expansion presents itself as both a novel idea and strategy for them, and many are understandably seeking guidance and support to build their confidence.

Other hurdles to global expansion for South Korean startups are more traditional, but no less daunting. While English is the international business language, Korean is South Korea’s national language and widely used by the masses in the domestic market. Apart from potential impediments to effective communication with international counterparts, this may present challenges when adapting technological innovations for other markets. Additionally, as with other businesses, these firms also lack local cultural capital in these foreign markets, making it difficult to navigate cultural norms and regulations, as well as build a new business network.

South Korean startups have made noticeable inroads within the ASEAN region, particularly in Vietnam, which has received significant attention due to its geographical proximity, large total addressable market and active government support. However, expansion to more distant geographies remain a tough nut to crack. Many South Korean startups are joining accelerators and cross-border startup ecosystem matching programmes, which can help some penetrate other markets. But not all startups are accepted into these programmes, which limits their exposure to opportunities.

The value of a global VC

A good VC should be more than a source of funding – it should be a startup’s partner, supporter, mentor and advocate. In the case of a global VC, this would be amplified with their domain expertise and networks in multiple markets, enabling them to pave the way for South Korean startups with outward-looking ambitions. Founders would be assured that they have patient capital and global network support from institutional investors who are startup-savvy, and have the ability to provide guidance, support and resources throughout their business lifecycle.

For instance, as the early-stage companies within our Vertex ecosystem scale and enter their next stage of growth, our growth team reviews the global opportunities within our network comprising of four technology funds located in the hotbeds of innovation – China, Israel, the United States (US), Southeast Asia and India and a global healthcare fund. These rising stars are supported beyond capital with expansion support for their next phase of development.  While operating independently with separate teams, Vertex’s platform facilitates seamless collaboration to ensure our portfolio companies receive end-to-end support across markets – be it introducing local connections or providing them specialised insight.

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1) Creating value through innovation partnerships

It is understood that a startup growth journey may incur high capital expenditure for their initial setup. However, beyond capital, it is also important for the business to have a sound strategy and roadmap to achieve long-term sustainable profitability. If not properly managed, this could be a make-or-break situation for startups. At Vertex, we have seen startups struggle with venturing into new markets due to poor financial planning or not being adequately prepared for unforeseen risk.

A global VC partner will be able to help startups compensate for this knowledge gap by bringing onboard their extensive experience in helping other portfolio companies grow. Budding startups will be able to leverage their expertise to implement best practices and avoid common pitfalls, thus reducing uncertainty and improving their chances of international success.

As an example, the Vertex Growth team has provided not just financial capital, but also the market expansion support for companies such as Cymulate and Nium to enter new markets across the Asia-Pacific region. Our local teams worked closely with Cymulate and Nium by offering local insight, introducing them to key players and amplifying their marketing efforts on-the-ground to help both companies start their expansion journeys on the right foot.

2) Opening doors to a wealth of new opportunities

Networks and relationships are an indispensable part of business around the world, and even more so when a startup is attempting to build its operations in a new market. With the right networks, startups can unlock access to local market insight, key talent, and business/partnership opportunities – all of which are catalysts for growth. However, networking can be challenging for many newcomers; it requires building both the startup and founder’s credibility from the ground up in the local market, which takes time and is further inhibited by language barriers and travel ability.

Established global VCs tend to be well-connected to the key stakeholders within their local ecosystems. This provides a double benefit for South Korean startups because the VCs understand the relevance and value that contacts would bring to the startups, and they are capable of making those introductions themselves. Additionally, VC-driven introductions also serve the secondary purpose of boosting a startup’s credibility in the local scene by acting as an affirmation of the VCs’s trust in the startup.

Having boots on the ground in Southeast Asia, India, Japan, South Korea and Taiwan enabled our Vertex Growth team to open the doors for Cymulate to have over 100 customer conversations, leading to the company successfully securing multiple contracts. We also helped China-based Geekplus establish their regional presence by winning their first Southeast Asian customer – YCH, a leading regional supply chain solutions provider.

3) Navigating complex regulatory environments for seamless operations

When entering a new market, startups should be mindful of the complexity of navigating local regulatory environments. Every country has their own regulations and norms. Recognising the outsized role governments play in economic development of local markets is critical to ensure successful market penetration. The development of the startup and VC industries have been closely linked to shifts in the government policies – especially regulations relating to private businesses and technology innovation.

Hence, the ability to help startups navigate regulatory processes is vital and a global VC should be well-versed with the regulatory environments. VCs can take on the advisory role when working with startups to ensure engagements with the local authorities can be streamlined to simplify the process.

As the first institutional investor in Grab, our Vertex Ventures Southeast Asia and India team persuaded co-founder and CEO Anthony Tan to relocate to Singapore – leveraging the strategic and economic advantage as a gateway into Southeast Asia. Beyond advisory, Vertex also played a pivotal role in supporting Grab from rebranding to facilitating conversations with regulators and major incumbents to key talent acquisitions. Today, Grab offers deliveries, mobility, financial services, enterprise – all through a single superapp. These services connect consumers from all walks of life and fulfil the everyday needs of millions across 428 cities in Southeast Asia.

Besides Grab, we have also extended our support to global payments platform NIUM, who moved to Singapore from Australia alongside Vertex Ventures Southeast Asia & India’s Series A lead investment. Besides helping the team with relocation, Vertex also played an instrumental role in attaining NIUM’s Singapore remittance license – setting the stage for NIUM to secure eight other operating licenses globally.

4) Introducing strategic co-investors to support fundraising

Beyond the provision of capital runway, a strategic investor brings on board capabilities, networks and experience to support a startup’s growth journey which include fundraising .

By connecting with strategic corporations and investors, the startup can gain access to funding, talents and other business development opportunities. The strength of the network avails unparalleled knowledge and experience to help a startup scale their business effectively. This can be found in a global VC partner where the true test lies in their quality of connections and relationships. At Vertex, we believe in providing the full lifecycle support to a startup’s journey and that includes bringing on-board strategic investors.

This was the case for Visterra, a novel Hierotope® platform used to develop precision antibody-based biological medicines for hard-to-treat diseases. Vertex Ventures HC saw the immense potential in the company, and Vertex Holdings’ Chairman, Mr Teo Ming Kian, was a firm believer and advocate of Visterra. Through his introductions, Temasek joined Vertex as co-lead investors in Visterra’s Series B round alongside Merck Ventures.

Choosing the right global VC partner

While there are myriad benefits for South Korean startups to work with a global VC, it is important for them to choose one that best meets their needs and aligns with their values. This minimises friction and ensures everyone is on the same page – a crucial element to maintain a seamless and productive working relationship as a company expands into new geographies.

In the same vein, startups should have open conversations with a global VC and define the nature of the VC-startup relationship from the beginning. Some VCs prefer a hands-off approach, while others favour an active involvement with their portfolio companies and will provide support throughout their journey. For instance, Vertex creates value for our portfolio companies by leveraging our unique global network architecture to enable innovation partnerships around the world.

It is also worthwhile for startups to look at a global VC’s track record and ability to raise new funds, signalling the support and confidence of Limited Partners (LPs). LPs are the investors of a VC, and high investors’ confidence manifests in a VC’s ability to raise new funds at larger denominations. A global VC with a strong fund performance and track record will earn the trust of their investors to consistently invest in promising companies. This suggests an experienced operator-investor streak, which is something founders should look for in a potential VC partner.

Finally, startups must recognise that just as they can choose VCs, the VCs can choose them too. As an experienced global investor, we recognise that partnering with startups is like a marriage – it takes time to find the right partner. We also understand the challenges of running a business – from execution to market and tech issues to raising new rounds for expansion. Hence, we adopt a forward approach by having these tough conversations with founders during the courtship process.

Through these conversations, we identify companies that possess a unique competitive differentiation – namely a business model that addresses a market challenge or gap well, along with competent and passionate management teams. The latter is especially important because leaders will drive everything from business strategy to company culture.

Soaring far and wide

South Korea’s startup ecosystem is uniquely exciting for VCs because it is very successful domestically, but now its players are looking to spread their wings and take flight internationally. It must be said that achieving international success requires more than replicating a strong domestic strategy, but this is why global VCs can be an ideal expansion partner – they have the resources, experience and networks to support startups in their global ambitions.

As a global VC focused on creating enduring, transformational category champions, we are passionate about backing disruptive startups worldwide to realise their full potential – for themselves, their industries, and their end users. At Vertex, we believe in building quality international networks in our mission to create significant and lasting value for our portfolio companies – within South Korea and beyond.

 


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