Open innovation in Korea is slowly moving away from building R&D capacities to reassessing business and operational models by either building its own corporate venture capital arm or working with an external consulting partner (typically a VC or an accelerator). The purpose for most Korean companies would mainly to have a testbed in innovating its business model or developing new technologies. And by running the open innovation program, the respective company would update its biz model, secure new talent, tech, market insight, and approaches to customer acquisition, etc.
Of course, a company may decide to buy a well-oiled startup with the range of technologies the company would need. For instance Hanwha Systems recently bought Satrec Initiative and plans to equip itself with the nut sand bolts to launch its own satellite.
In Korea, open innovation really used to be investing in a company one by one or expanding its social impact footprint and its CSR program, e.g., Hyundai Car’s pitch program called H-On Dream, but it is now opening up to a much more open collaborative approach.
- Digital Transformation with a consulting firm: One of the most well-known open innovation consulting firm is called 로아 인벤션랩. Its most successful case studies are with KT 국민은행 and working with fashion & cosmetic brand companies that were relatively slow to innovate, e.g., LF and 신세계. Side note: It also began investing in startups, ~20 last year, via an angel-based VC, Big Bang Angels.
- MOU-based with VC/Accelerator: A large startup/accelerator/VC signs a partnership with a corporation to reassess its business model. The example I witnessed was the one with Hashed, a blockchain fund in Korea. It worked with an array of companies, banks, LG CNS, and those even remotely interested in learning about blockchain, including SM entertainment and CTIA, a mobile telecom company. And in doing so, the corporation’s tech or new business department could pilot a business model and the VC funneled its startups to partner with large corporations.
- CVC: The corporation could also decide to build its a raw datasheet of startups by opening a “신사업” or new business branch in industries it already does business in.The most successful ones I’ve seen are Kakao Ventures and Samsung Next. Most Korean CVCs do not have a very strong international base, except for the Korean conglomerates that already have a presence abroad. 한화생명’s Dream plus 63 has secured a network in Tokyo and Shanghai. Even Smart Study famous for its animation and its song, baby shark, has hired one or two investment analysts to review startups that they could be a part of. And it was quite successful at it so far. The interested company could soft-land by participating in one of KITA Next Rise’s programs as a judge/mentor.
- Introduction-based: KITA has done this really quite well. KITA is the parent company that owns the space in Coex Mall and has a free lounge for startups. Annually, it hosts an annual conference called Next RIse for the purpose of assisting with open innovation. Another program KITA is famous for is a program called Fortune 500 Connect. KITA hosts an open invitation for startups interested in working with conglomerate contacts, notably BMW and Chanel, in the States, etc., to make introductions.
Open innovation may seem tricky to enter, but there are many new mediums in which the startup could enter the field of open innovation. I suggest all those who are interested to start attending the startup-corporate meet-ups and or read case studies of successful programs or acquisition models.
The one I think most VCs outside Korea might start looking into might be Crunchbase— like this site here on VCs. It shows some acquisition history and the overall landscape, but not much.
Where Korean VCs and startups look into who invested into where is called thevc.kr. Yes, it is in Korean, but with a Korean speaker, you can look up any fund, who invested into where, and who are the hottest VCs are, and even filter by the technology, geography, and the stage of startups to get the latest funding round news. This is the site I recommend. This is a nice map to view the listings of angel clubs, communities, and foundations. Another place you can view a list of recent funding investing news is at Venture Square, run by a media startup.
To look other thematic funds in Korea, check out FundFinder. If you need contact information to the fund managers, here is a list of directory on KVCA. In Korea though, cold call or messaging almost never works. It is usually done through mutual connections or introductions.
Okay, now you need some templates and forms to begin.
- Korean Venture Capital Association guidebook for both startups and VCs. It’s an amazing resource. Definitely bookmark it.
- START Docs for early-stage Korean startups. Co-written by 500 Startups. You can log in your numbers, and you’re good to go. It’s been reused and vetted many times, so they’re pretty standard.
- ModuSign These are docs for between investors, MOUs, you name it. It also has a quick explanation next to it, so it’s quite good.
Josh Wolf is a co-founder of Lux Capital to “support scientists and entrepreneurs who pursue counter-conventional solutions to the most vexing puzzles of our time in order to lead us into a brighter future. The more ambitious the project, the better—like, say, creating matter from light.” Peter Thiel is a co-founder of PayPal, Palantir Technologies and Founders Fund. Plantir is an In-Q-Tel and Founder’s Fund-backed company.
Peter: By my count, there are only two companies that have been started since The Cold War, that are (1) focused on national security, and (2) have reached a billion-dollar valuation: SpaceX and Palantir. [4:00]
Peter: A lot of innovation gets driven by smaller companies. This is absolutely critical. When not many people are doing it— if you are one of the few who do it— there is a lot of opportunity. [4:25]
Josh: Strength comes in part from technological dominance. Technological dominance comes from brilliant engineers that are inventing cutting edge technologies. [6:20]
Josh: Palmer Luckey, Trae Stephens, and Brian Schimpf [founders of Anduril Industries] are authentic engineers that are obsessed with technology.
They are constantly thinking about:
What does the warfighter need?
Where is the white space?
Where is the gap?
What is China developing?
What is Russia developing?
How can we put them [US warfighters] with the most cutting edge technologies out there?[6:35]
Josh: Many of these people [those inventing new technology] were inspired by Science Fiction. They are literally going back— 20 years into the annals of comic books and sci-fi movies— and saying it would be amazing if we had that. [7:00]
Peter: If you can’t create a business that is worth a billion or more the venture capital model does not work that well. If you start a company that is worth $30 or $100 million that can be quite successful for the person who started that company. For a venture fund if that is the best we did we would be out of business. [9:40]
Have Palantir and SpaceX created a template for other startups to follow with the defense space? [Peter]: Well there is certainly proof that it can be done. In both cases, it took a wickedly long time. Close to a decade to start getting significant contracts from the US Military. In some ways, they were not conventionally venture fundable. [10:20]
Josh: It helps to reduce market risk. You will have a lot of venture capitalists that say you are focused on the defense industry. The stereotypes of the defense industry are that the defense industry is slow-moving, bureaucratic, very political, they might not pick the best technology, they might instead give the contract the company they have been working with for the past 20 years, etc…So whatever you can do to eliminate that risk [is good]. [If not] It is like we are fighting with ourselves by not equipping the warfighters with the absolute best technology that is coming from some of these early companies. [14:30]
Josh: The origins of Silicon Valley were in electronic warfare and defense. There is an aversion for people to want to work on defense-related things. That is a zeitgeist that is growing. [21:30]
Josh: I think there is a job society can do —and that is the retelling of a narrative that can galvanize some of the best and brightest to work on American defense. [23:10]
Peter: There is always this danger for a tech company to become overly bureaucratized. [29:49]
Josh: The one real edge you can have as an investor is a behavioral advantage. For us [at Lux Capital] that means having a longer time horizon than the average investor. We call this time arbitrage. If the average investor is looking for a signal of success in a year or two— and we are looking at something that might not give us a signal for 4 or 5 years —then by definition there will be fewer investors looking to fund what we are funding.
The valuations will be lower— and if we are right —the returns for us and our investors will be higher. So we like to look at things that are further out which means they are riskier and more improbable to work. But when they do they work in a really big way. [30:46]