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| Title | Korean VCs flock to the valley (Silicon Valley Biz Ink) | 2003.08.22 |
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FROM: Published: Friday, August 22, 2003 BY TOM KANESHIGE At a small gathering of venture capitalists in Palo Alto, Heesuk Kim stood patiently with a few Korean friends. A valley executive at a startup company approached and asked Kim if he was evaluating investment opportunities or seeking capital himself. Kim replied in broken English, "I'm here for big business." Unsure of what this meant, the valley executive smiled sheepishly and walked away. He didn't know that Kim was the point man of venture interests for the Korean Development Bank (KDB), one of the largest banks in Korea. (Based in Seoul, South Korea, KDB is the primary financial backer of high-tech giant Samsung Group.) It was a missed opportunity. Korean venture capitalists have flocked to the valley in recent months, hoping to find deals in the backdrop of reasonable startup costs, low company valuations and signs of a greater economic recovery. Korea follows Japan as the biggest valley investor from across the Pacific. Cosmopolitan corporations from both countries are technologically savvy and understand the importance of expanding their portfolios with valley companies. But the cultural chasm between valley execs and overseas investors looms as a significant hurdle. Last year, Korean venture capitalists spent about $100 million in the valley. This year they've earmarked $500 million, a whopping fivefold increase, says Michael Paik, attorney and U.S. counsel to the Korean Venture Capital Association, which represents more than a hundred Korean companies. "Over the past six months, the valley has really opened up to foreign investors," Paik says. "They're finally getting a seat at the table of good deals." KDB sent Kim, also an attorney, to the valley a couple of months ago to assess tech companies, giving him the power to authorize sweeping investments. Working from a tiny, windowless office at iPark Silicon Valley, a Korean government-backed incubator in San Jose, Kim portrays a quiet demeanor that belies his considerable clout. At iPark, Kim has met other Korean venture capitalists new to the valley, such as Daniel Shin, principal at BiNext HiTec Co., a subsidiary of energy corporation Daesung Group. Shin plans to make a couple of investments this year, too, preferably in Internet security companies, with a total investment of up to $2 million. The goal is to make money from these investments via liquidity, says Shin, rather than to bring cutting-edge technology back to Korea and distribute it. Kim, Shin and others at iPark represent the second wave of Korean investors foraying to the valley. The first ones came in the late 1990s and didn't fare very well. The dot-com craze was at its peak, and Silicon Valley venture capitalists battled among each other to get the best deals. A smart image and personal networking skills were the tools of trade. Foreign investors took a backseat. Making matters worse, Korean investors had different notions of vital financial instruments and protective measures, such as preferred stock options and nondisclosure agreements. "Several Korean venture capitalists got ripped off," says Paik, adding that a few U.S. companies also were burned. "The more those things happened, the more leery people became about doing business overseas. In the end, that hurts everybody." Today, the investment environment is much friendlier, competition not so fierce, and short-term, cut-throat tactics virtually non-existent. In fact, Kim and Shin spent their first months learning the art of valley deal making from native venture capitalists. They've helped the two men gain exposure to some of the best deals in town. "If we partner with them, we usually get the good deal flow and terms," Shin says. "They also refer several businesses to us." Cultural hurdles though, still abound. The biggest challenge, says Kim, is that many valley startups have never heard of KDB. This means he has to market his firm to strangers, in a sec |
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