I think US Venture Capitalists are missing out on two major markets in Asia
I’ve been traveling to Asia for almost twenty years in a now, and each year I’m increasingly more excited about everything that’s going on there — and lately the startup scene has me more excited than ever. While we all know and use products and services from companies in Asia, I’ve found that many investors in the US don’t really know much about the startup scene there, especially in markets outside of China like South Korea and Japan.
I live in San Francisco so I’m inundated with all things “startup” wherever I go. That’s one of the things I love about living here, the creativity and entrepreneurial spirit in the air is almost palpitable. At the same time, I’m seeing the same environment growing quickly in places like Seoul and Tokyo led by startups none of us here in the Bay Area have heard about, and they are changing the world…just on the other side of the world.
One of the most interesting experiences I had in the last couple of months was in Seoul, South Korea. For those who haven’t been before, here’s something you might not know — Google Maps and Apple Maps are a no-go in Korea. That’s right, your go-to map apps aren’t going to do you any good, but don’t worry, Kakao has your back.
If you haven’t heard of Kakao, that probably just means you haven’t been to South Korea because it’s pretty much impossible not to use their apps once you’re there. From KakaoMap to KakaoTalk, Kakao is one of South Korea’s tech giants and they’re bringing in over $2B/year.
When I was in Japan, ZozoTown was everywhere. Never heard of them? They’re an apparel eCommerce store that does roughly the same amount of business, just in Japan, that Levi’s does globally. Doing the math that comes out to over $4B a year, and I can guess that only a small fraction of venture capitalists in the Bay Area know about them.
Of course, this shouldn’t come as any huge surprise. The startup scene in the US is on fire and the Bay Area has become the epicenter for venture capital. Additionally, cities like Portland, Austin, Minneapolis and more have seen emerging tech scenes proving that a successful startup can exist anywhere.
We live in a time where location is becoming less important in so many ways. Companies here in San Francisco now have employees all over the world. Austin startups recently had a roadshow in Los Angeles and San Francisco and the same is starting to happen with startups from around the world. While some Venture Capitalists still want startups to be a short drive away from their offices, more and more are realizing that with solutions like Zoom and Slack location is becoming less important.
Which brings me back to Korea and Japan.
I think that US investors are currently massively under-indexed when it comes to investing in startups in Asia, and that’s going to change over the next decade. As investors in San Francisco and New York start to get more comfortable investing in places like Austin and Minneapolis, a paradigm shift will begin. The idea of needing to be able to drive over to a startup’s office will go away, and with it, I think a bigger barrier will go down than you might initially think.
The reality is. If an investor here in San Francisco can get more comfortable investing outside of Bay Area, why not start looking beyond the US and include startups in places like South Korea and Japan? You’ll notice I’m not mentioning China in this article, and it’s not because I don’t think China doesn’t have a ton of interesting startups, it’s because I think China is already on everyone’s radar, South Korea and Japan aren’t, and that’s where I think there’s a real opportunity.
I spent two weeks in South Korea at the end of last year, I’ll be going to Japan for two weeks very soon, and then I’ll likely go back to both before too long. I’m still collecting data but I think the investment opportunities in these two countries is very meaningful, but the flow of data and deals between these countries and US Venture Capitalists just isn’t there yet.
So what’s missing?
I think there are two big barriers. First — there’s a language barrier. Not many investors speak Korean or Japanese, and there are tons of startups in both countries where the founders don’t speak English. Of course there are plenty of startups with English-speaking founders, but it’s not all of them and I don’t think it’s fair to say that a founder in another country would need to speak English in order to get funded by a US firm. Instead, they should do what investors are looking for, build a great team, a great product, and scale.
Second — there isn’t a great way for US investors to get plugged-into the startup scene in Korea or Japan. While there are programs that are trying to increase the exposure startups in these two countries get in the US, these are still the early days and your typical US VC Firm still has almost no investment exposure in either of these regions.
This is where smaller markets closer to home currently have a big advantage. An investor here in SF or in LA who might have never considered investing in Austin, now has groups like Capital Factory bringing their top startups to SF and LA - the deal flow is coming to them, and they‘re all pitching in English.
Now getting back to the two barriers I mentioned above. I think these barriers are actually relatively small, and getting smaller every day. A language barrier is easy to overcome either with translators or US firms leveraging (or hiring) team members who speak another language. As for getting plugged-into these startups scenes, roadshows like the one that Capital Factory did with Austin startups this month in LA and SF could be done with the best and brightest Korean and Japanese startups.
While I don’t currently have the perfect end-to-end solution in mind for accelerating what I see as a real global investment opportunity, I do want to play an active role in helping to make it happen. That all starts with this article and will continue with what I do next as I continue to travel between San Francisco, Korea, and Japan.
Stay-tuned, there’s a lot more to come!
Note: One topic I didn’t cover in this article is the geopolitical challenges both Korea and Japan are having with each other. This is an incredibly complex topic and while it deserves coverage, I’ll need to save that for another article!