Indian startup ecosystem emerges as the sweet spot for Korean investors (update)

Mirae Asset, Korea Investment Partners (KIP), KB Financial Group, and KTB Network are a few active Korean funds in India.

Photo by Charl Folscher on Unsplash

Charlie Lee is a busy man. The South Korean entrepreneur shuttles between Gurugram and Seoul to run True Balance, a mobile top-up app he started specifically for the India market in 2014.

Backed by SoftBank Ventures Asia, the company is pretty famous within the investor community back in South Korea. In 2016, Line Ventures, Naver Corp, and Shinhan Bank put in money in True Balance and Lee’s vision of turning it into a microloan, and insurance platform. This October, seven more South Korean investors have come on board, writing a USD 23 million cheque.

It isn’t just True Balance that has fancied Korean investors, but companies such as Ola, BigBasket, and Rivigo, among others have also raised money from South Korean venture capital (VC) firms. The rapid growth of India’s startup ecosystem—rise in the local angel investor community and an increasing number of strategic as well as institutional investors from China making a beeline to invest in Indian technology startups—has intrigued Korean VCs.

This year has seen some marquee investors from the East Asian country becoming active in the world’s second-most populous country, which is home to one of the largest startup ecosystems globally. Data from research firm Venture Intelligence shows that from a mere five deals worth USD 9 million last year, South Korean VCs have participated in 15 rounds of investments so far this year, deploying about USD 220 million.

Some of the most active Korean investors in the country include Mirae Asset (the first one to establish a presence in India), Korea Investment Partners (KIP), KB Financial Group, and KTB Network, among others. Samsung Ventures, the investment arm of South Korean conglomerate Samsung Group, has also kicked off investment in the country this year, with four early to growth-stage startups, and has plans to invest in about 100 more over the next five years.

“Two to three years ago, many Korean investors started to invest in the Southeast Asia market, but not India. However, starting this year, many Korean VCs are getting into the India market, and at least four to five of them are very active,” True Balance’s founder Lee told KrASIA.

Brij Bhasin, general partner at Asia-focused early-stage venture capital firm Rebright Partners, told KrASIA that he sees a “definite momentum driven by Korean investors coming to India, and having direct conversations with startups, and sometimes even considering making entrylevel investment in funds.”

For instance, after visiting India in June this year, Seoul-based IMM Investment saw a rapid growth of the emerging fintech market in the country, and decided to back True Balance, Na Kwang Kug, director at IMM Investment said in a recent press release. Just like IMM Investment, many Korean investors and companies have come to know about the magnanimity of the Indian market through True Balance, claimed Lee.

India, an unfamiliar and untapped market

For South Korean VC firms, India has always been a distant market.

“Korean investors were not familiar with India at all. Korea and India are far countries, not only geographically, but also emotionally, and culturally as compared to other Asian countries like China, Japan, or Southeast Asia, which are visited by many Koreans,” Lee explained.

Companies like Samsung, LG, and Hyundai have been successful in India, but for other companies, “it was not easy to go to India, so it was never the first market to be considered.”

Things started to change when the governments in the two Asian countries began working together to promote the startup ecosystem last year.

“South Korean government is working with the Indian government, and they have set up a startup incubator program,” Ping Wang, associate partner at the Korean Investment Partners (KIP), South Korea’s biggest venture capital firm, told KrASIA. In February this year, India and South Korea government formed India-Korea Startup Hub to bring the ecosystems of both the countries closer and to facilitate joint innovation between the two economies.

“Although it’s the same continent, not many Korean investors have visited India. Now, facilitated by their respective governments, they have begun to do that.”

With a limited domestic market, South Korea has always been an exporting economy. And as the size and maturity of India’s startup ecosystem grows, it has become the right place for them to tap into.

“Most of the Korean companies are going global. They do not just depend on the domestic market, because if you don’t go global, the government won’t support them,” said Wang.

According to Lee, the Korean government is pushing the startup ecosystem by putting in a lot of money in Korean VCs. “So, Korean VCs have a lot of money. And they are ready to invest in the long term in a market like India where the startup ecosystem is very hot,” Lee said.

A recent Nikkei Asian Review report said since Korean VCs have invested in a lot of home-grown startups, and are running out of options to find good deals in the country, they are now looking at overseas bets.

“Not finding good opportunities, many early-stage VCs and accelerators are broadening their investment towards SEA/India recently,” the report said.

The sweet spot

The entrepreneurs and analysts KrASIA spoke to, said, most of the Korean VCs have just got exposed to the India market and hence are going for growth-stage, and mid-to-late stage startups.

“They do not prefer angel stage deals or a USD 100-million-deal. They are more likely to go for Series B and Series C, so their cheque size may range from USD 5 million to USD 40 million,” said Lee.

“The effort to analyze one small deal is similar to what it requires for a late-stage deal,” Wang explained. “But mid to late-stage deals are much more secure since investors and research firms get their due diligence done. Hence it’s better to invest in companies that already have some traction.”

Data sourced from Venture Intelligence and Tracxn show that Korean VCs have picked up a handful of growth-stage startups—True Balance, Revv, HappyEasyGo, and GlowRoad—and mid-to-late stage companies such as Dunzo, Grofers, BigBasket, Rivigo, and Ola.

Taking a closer look at the companies they have decided to back, it seems that sectors such as hyperlocal delivery, logistics, and mobility are a few favorites among investors from South Korea.

“Grocery is one of the most interesting sectors for these investors because it has the biggest total addressable market. If you look at India, the whole retail market size is about USD 800 to USD 850 billion. Out of that, about USD 550 billion is grocery itself,” Manas Gupta, head of investor relations at Grofers told KrASIA.

Gurugram-based Grofers is backed by KTB Network, which joined its cap table along with SoftBank, Tiger Global, and Sequoia Capital when the grocery startup raised USD 250 million in May this year.

“Logistics is obviously a natural extension, because ultimately anything that needs to happen, logistics is the backbone for that,” Gupta added.

According to him, India is not a mere template of China—as it was earlier expected to be—and is following a very different growth trajectory as compared to China because per capita GDP of the two countries are vastly different (China’s USD 6,000 to USD 7,000, versus India’s USD 2,000), and so are the discretionary spends.

“In China, everybody’s trying to solve for how quickly a product can be delivered to the customers,” Gupta said. “But if you look beyond the top 50 million consumers in India, people are extremely savings oriented. They are happy to wait for a couple of days, but they want the best prices. And that is how the different business models start evolving.”

Gupta believes South Korean investors have started to learn how the market is evolving, and how it is different than other markets. “Korean investors are taking a very first principle approach and looking at the sectors which have the most potential, rather than going after the biggest guy in town.”

In India, Gupta said, even if a startup is growing at the rate of 2 to 2.5x, there is a lot more prudence around unit economics, and that is where the Indian startup ecosystem is different from the Chinese startup ecosystem.

“Korean investors are coming in with that clarity of thought,” he added. “They bring in a fresh perspective and ask a lot of good questions which push us to have a deeper understanding of our customers.”

Different strategies

Over the last two to three years, South Korean investors have become aggressive in the Southeast Asian countries such as Indonesia, Singapore, and Vietnam, among others. Since these markets are culturally similar and are trying to solve for the same problems, Korean investors understand them much better. India, however, is way too different than their existing markets, yet is too tempting to be ignored. Hence, most of the Korean VCs are in the process of devising their India strategy.

“In Southeast Asia, we look at the startups that can grow very fast internationally because the domestic market is not as large, but India is a huge market in itself, so even if the startup grows within India fast, we would look at it,” said KIP’s Wang. “The strategy for every investor would be different, just like every phone maker is different.”

“Our India strategy is somewhat different than our China strategy. When we entered China, the market was already matured, and it was much more competitive. While in India, that’s not the case. Here we are still early. In India, there would be just about 500 investors as compared to 20,000 in China,” he said, adding, KIP reviews about 10,000 startups a year in China, whereas in India, the number is just about 10% of that.

“We would normally go for a company that has the ambition to grow globally and has a full understanding of the capital market,” he added.

In India, KIP has already made two investments—HappyEasyGo and GlowRoad—and is in the process of closing three to four more deals in logistics, education, and venture capital firms, to expand its presence in the country. By the year-end, it wants to have at least six deals done.

According to Wang, sectors and business models that are already proven successful in other markets are of more interest to KIP.

“Investors are more confident when they are analyzing something that has already been proven, so if a business model has already worked in other markets, we would be more interested in that,” he said. It’s not that India specific models are not interesting, but it is easier to analyze something that has already worked in some market.”

However, there are many who seem to be willing to bet on India specific models, case in point being Grofers, and True Balance, among others.

Wang said KIP is looking for co-GPs (co-General Partners) in the India market, and would like to collaborate with traditional financial institutions in the country, adding that once the Indian financial market matures, there would be “a full-fledged interest from South Korean VCs.”

According to Lee, there are a lot of strategic investors like Korean banks, and service providers, who are very interested in investing in the Indian market, especially financial sectors like banks, non-banking financial companies (NBFCs), and insurance companies.

While the Korean VCs are entering the Indian market with a long term perspective, according to people KrASIA spoke to, they are more exit oriented than some of their American and Chinese peers.

“Security of our assets is the most important thing,” Wang said. “We are not going to invest in just one deal. Instead, we would go for the complete ecosystem of financial institutions, secondary markets, asset management funds, and large social security funds. We’d like to make sure that the deal earns us money.”

“We are not philanthropists,” he said.“Ultimately we are looking at exits and making money.”

Correction: The Korean investment arm of KTB Group that invests in India is KTB Network. An earlier version of the article misstated that as KTB Ventures. We have made the correction accordingly.