The Financial Times ran an article on my friend, Jimmy, and his current company, Innotive, today. I blogged about Jimmy several times before, such as this post here. We did two startups together and his current company was the one I was advising and helping out during my last nine months in Seoul. I asked him and Peter, our other co-founder from those two startups, to consider looking at Innotive, which they did and eventually took over the management. I'm still an advisor to this multimedia software company. Anyway, some good news will be announced soon for Innotive.
As for the article, I heard that the print edition had a full picture of Jimmy, so I'll probably go buy a copy tomorrow. It's the lead story in their Business Life/Entrepreneurship section. Unfortunately, the reporter, who was kind enough to mention me, wrote that I was a "San Francisco-based technology consultant and blogger" so I didn't get a plug for GoingOn. It was months ago when I was interviewed by her, but I don't think she ever asked me what I was currently doing. Well, when we start becoming more active publicly in the coming months, I'm sure there will be more opportunties to plug GoingOn.
Anyway, since it takes a paid account to access the article online, I'm going to just post the whole thing.
Born in the USA, making it in Korea
By Anna Fifield
Published: September 20 2006 18:58 | Last updated: September 20 2006
In a grey room in a run-down building in southern Seoul, twentysomethings in T-shirts and flip-flops are tapping away furiously at their screens, an electric guitar propped up against one desk.
Here at the headquarters of Innotive, a software revolution is taking place. The engineers are working on a new kind of content integration and delivery programme that brings together all kinds of media – photos, video, text, hyperlinks and music – with the aim of challenging the might of Microsoft PowerPoint, the market leader in presentation software.
The company is also at the cutting edge of another revolution in South Korea: it is funded by a small group of private investors and is not linked to any of the chaebol conglomerates that dominate the country’s business environment.
Innotive’s software enables large volumes of data to be transferred and accessed quickly. It can handle many different types of content and many large files at the same time.
“PDFs, Flash Macromedia, 2D, 3D, animation, video, audio and hyperlinks – it can all be integrated into a single programme that can be accessed from computers, PDAs, mobile phones and set-top boxes,” enthuses Jimmy Kim, Innotive’s 35-year-old president.
Mr Kim demonstrates with a sales presentation used by Nissan Infiniti dealerships, which he describes as being “like Minority Report”, the futuristic Hollywood movie in which Tom Cruise’s character manipulates data on a transparent screen using a specialised gloves.
With the presentation appearing on a huge flat-screen television, Mr Kim taps the screen to change the colour of the car or to zoom in on its features. Tap again and it shows a video; once more and it brings up the list of specifications. Users can even draw on the screen and see their marks appear in the presentation.
In South Korea, customers include SK Telecom and Korea Telecom, and the Chosun Ilbo and Donga Ilbo newspapers. International clients include carmakers Hummer, Nissan and BMW, and broadcasters including TV Asahi and NHK in Japan, and CBS in the US.
The Innotive software application starts at $5,000 but the company also offers to design presentations for clients, for fees ranging from $2,500 to $150,000 per presentation depending complexity.
Together with six of his friends (also on the management team) Mr Kim owns 60 per cent of the company, while small shareholders own the rest. He expects Innotive to generate licensing revenues of $700,000 this year and has just raised $3m in two tranches from investors in Korea and the US.
The idea of using venture capital – not to mention entrepreneurship itself – is something of a foreign concept in Asia’s third largest economy. Mr Kim – who was born in the US, where his father worked at the space agency Nasa, moved to Korea when he was nine but returned to study biomedical engineering at Northwestern University – has certainly come up against many challenges in trying to combine the two concepts in Korea.
After working in corporate development and product planning at Trigem Computers – “I call it my MBA,” he says – he caught the entrepreneurship bug. “I was 26 but when you’re young and foolish you think two years is enough experience.”
With his friend Bernard Moon, another Korean- American, Mr Kim started a video-on-demand (VOD) cable television venture, deciding it was the next killer application.
“The hardest thing was getting our first start-up capital, but with my friends we raised $600,000 in 1997. We created it as a US company because it was easier to get funding – investors frowned on Korean companies that weren’t Samsung or Hyundai,” Mr Kim says.
But in Korea there was not – and still barely is – such a thing as venture capital, so potential investors always wanted to know how much of their own money they were putting in.
“In Silicon Valley, it was: ‘Give me your dreams and I’ll give you my money’. But in Korea people would say: ‘Give me your house and I’ll give you my money’,” Mr Kim says.
The Korean government is the biggest investor in ventures, contributing about 27 per cent of capital, followed by ordinary companies, VCs, pension funds and institutional investors, with half the money channelled into the information technology sector. VC funding hit Won2,000bn in 2000 but plummeted after the dotcom crash and amounted to only Won665bn (£375m) last year.
Mr Moon, who now advises technology companies, adds “cash is king” in Korea and other Asian countries. “In the US, venture capitalists say they don’t want to take more than 50 per cent in a company because it discourages entrepreneurship, but in Asia, investors look to take more than 50 per cent because they don’t value the intangibles,” he says.
Nevertheless, their VOD venture, called View Plus, got off to a good start, with moral support as well as financial backing from technology guru Masayoshi Son of Japan’s Softbank. But Softbank suggested that Mr Kim put View Plus to one side to set up the Korean operations of HeyAnita, a telecommunications company.
Then came the bursting of the dotcom bubble, which spelt the end of the cash for both ventures.
So Mr Kim took a day job as chief financial officer at Nexon, an online gaming company started by his college room-mate. At that time the company had revenues of $30m but it had hit $100m by the time Mr Kim left.
“I’m very, very restless and at that time I was also a board member of Innotive, which was very typical of small Korean companies: it had great technology but no access to sales and marketing expertise or the capital to grow,” he says. So Mr Kim embarked on a management buy-out.
Technology aside, Innotive has been helped by the fact that it occupies a niche where the chaebol do not operate and “where they can’t muscle in on our business,” says Mr Kim (see panel).
“That’s part of the reason why Korean online gaming companies have done so well, and why iRiver, the Korean MP3 maker, is struggling,” he says. “Our product doesn’t compete with the chaebols’ – it enhances it.”
Curbed by the conglomerates
South Korea’s corporate landscape has for decades been dominated by the family-run chaebol conglomerates such as Samsung, Hyundai and LG, whose businesses span industries as diverse as shipbuilding, information technology, tourism, healthcare and autos.
But just as the chaebol were largely responsible for South Korea’s dramatic industrialisation, they are suffocating new businesses. Such is their strength that it is generally impossible for startups to compete. For instance, VK, a medium- sized mobile phone maker, went bankrupt in July.
“Regardless of whether a company makes a better mousetrap than the chaebol or not, it is very difficult for SMEs to compete,” says Hank Morris, a business adviser and 25-year veteran of the Korean market.
Many smaller companies are set up to supply chaebol companies, but this, too, leaves them at the mercy of big business. It is not uncommon for the conglomerates to follow agreements to raise workers’ salaries by 5 per cent with an insistence that suppliers cut their prices by 5 per cent.
But the chaebol’s insistence on allegiances also limits smaller companies’ options. “In Korea it’s very black and white. Are you with Samsung or Hyundai or LG?” says Jimmy Kim, president of Innotive. “If you have a relationship with one you can’t have one with another.”
The very existence of the chaebol discourages entrepreneurialism, says Bernard Moon, a San Francisco-based technology consultant and blogger.
“Even during the boom times, when the younger generation in Korea got a taste of entrepreneurialism, there was a hesitancy to leave the comfort of the Samsungs and the LGs.”
Entrepreneurship may now be blossoming but chaebol addiction could prove a harder habit to break.
Copyright The Financial Times Limited 2006