Daniel Saunders (L Marks): Programs that we run are very much about identifying challenges and themes within organizations that are open to disruption
21 Jan, 2021
Oh-hyoung Kwon is a growth-oriented individual who is part of a rapidly growing company builder/venture capital firm. He is passionate about connecting dots between people and resources.
Oh-hyoung is always eager to connect with startups, blockchain enthusiasts, capital market professionals and creative thinkers.
How I became a venture investor? I don’t know, it just happened. I started my career as an accountant at Deloitte. After graduating from college, I thought accounting was something you need to understand to be in the business world because it is the language of the business. I did that and I’ve got a little bored.
Then I transferred myself into a more business-oriented position, moved from the US to Vietnam and spent there about 2,5 years developing businesses. After that I came back to Boston and joined a fintech startup. From the day I started my career, I had in mind my career path to go either two ways: run my own business, or be an investor in the private equity category. I didn’t know what that really meant, but I always was either in direct business or investing. And when I came back to Boston I joined a startup from a fintech world, ran operations and businesses for about two and a half years. Then I realized that early-stage venture investing is something that I’m passionate about.
I look for opportunities, and FuturePlay popped up. Luckily I got connected to the founders, went through the typical interview processes and join the company. That’s how I got here five years ago.
We are heavily focused on deep tech. I am probably the outlier here. A lot of our members have deep tech background. Our CEO started his facial recognition company back in the day and sold it to Intel. He wants to replicate that. So, we are focusing a lot on software, but mainly on deep tech, AI, self-driving, electric cars, rockets and all that good stuff. We are trying to go into space industry, but we couldn’t find as many deals that we like because there aren’t many of them. But we keep trying.
We are not only oriented in aerospace but what we are looking for is something that will reinvent or disrupt our daily lives in the next 10 years. That is something that we are looking forward to. We are also looking into software app businesses, consumer product-driven businesses, but deep tech is something unique about FuturePlay.
Personally, I don’t have a specific industry that distracts me, but I’m more attracted to exceptional founders regardless of the industry. It could be ed tech, robotics, AI, or healthcare, but it should be someone passionate enough to make really denting the Universe. That is someone that I’m looking for. In terms of industry, I’m open to it. I’m personally passionate about the SaaS business, but it could be still many industries. SaaS is a business type, not an industry. I’m more and more interested in the B2B SaaS, but I’m open to different industries.
We are based in South Korea. Obviously, it has been our primary investing country. We deploy about 75% of our capital to Korea. Other than that, we are investing heavily in the United States startups, and are looking on Japanese startups. Also, we are interested in the Southeast Asia region since it is an attractive market, especially Vietnam and Indonesia. They are growing right now and the passion of entrepreneurs from Vietnam is just outrageous. We’ve made two investments in Vietnam. They are doing well and we are excited about them.
We are seed investors. We invest anywhere between seed 2 and Series A. Our check size range between as little as $50K and as large as $1 million. I guess you can gauge that, but we would like to get involved as early as possible. We define ourselves as not a venture fund or an accelerator. We are closer to company birder or start studio that has an investing functionally within it. Even though we don’t manage a massive amount of funds, we are a pretty big team. FuturePlay is a group of 60 people. We have in-house marketing and PR experts, strategists in intellectual property, HR and marketing. We are trying to be more hands-on with our startups.
There are so many unusual. The entrepreneurs that we work with are just not within the normal scale of people. It’s not an easy question. We are working with a lot of deep tech startups. Typically, they are super-duper genius engineers but have no idea of how to build a business. That is very common for our portfolio companies, but that’s very unusual for other venture funds to invest.
In the beginning, we thought it was difficult to turn engineers into an entrepreneur, but I think it started to work. That’s been unusual for us. I think the one thing that is very unusual for these entrepreneurs with engineering background is that they just don’t give up. We see that a lot of consumer-based or relatively younger founders tend to give up early on. These engineer background founders just don’t give up, even if they run out of money every year and all their employees left, they just keep going. And I see so many bounce backs, so that’s something that I’m really proud of and enjoy working with these entrepreneurs.
There got to be a market that is big enough, or that is being disrupted. It might be not as big now, but it will be large enough to become a unicorn in the next five years or so. Market is a must-have.
Our fund is focused on deep tech companies and unique technology is extremely important. Many startups have their own ways of unfair advantages, but for the tech startups, the unfair advantage is their technology and capability of building something great that no one has built. All our companies build from zero to one and that is coming from technological supremacy. That is something that we are looking for in the company. Even if the company has amazing technology but if there is no market, then it’s not fit for the business.
The product should be customer-centric. The business should be focused on the customer-centric product that they have to build. Many times, entrepreneurs want to build what they want and what they can. That’s not what we are looking for.
More than anything I look for a strong entrepreneur. If anyone will ask what is the one thing that I cannot let go of, it would be the tenacity of the founder. If things go wrong and co-founders leave, can he or she keep going? That’s something that I try to find out really hard.
Technical supremacy is another thing. Does the founding team have the capability of attracting top tier engineers and top tier business team? For me, it is more important rather than their personal capability.
I’m not too against one founder startup. If you will look at many successful stories, there are founding teams behind them. I’m sure they work off together and it is very important to find that founding team early on. But in the end, strong leadership can pull everything all the way to success. I’m not saying that teamwork isn’t important. It is important but only the founders’ willingness is the key success factor to the business.
Sometimes, very rarely, we invest in a one-man company, but there is a point in our checklist whether the entrepreneur has the ability to build his own team. It’s okay not to have a complete team now, but can you build a team during next three-six months down the road? That is something that we look for because no one can build a business alone.
Speaking about family teams I don’t see many of them, but I’m not against it because it could be good. This is very rare to find top talented family members to become founders of the companies that we normally look for. I’m not trying to be just on one side that we don’t invest in family businesses, but from a statistical perspective, we don’t see many successful families started businesses.
I would not discriminate them, and I’ll just judge them based on their individual and team capability, whether they can build something great. I’ll try to ignore the fact that they are family members. If something goes fishy and one of the family members is not capable of being a part of the founding team, then I will question them. But other than that, I would ignore it.
Typically, we invest anywhere between $50,000-1,000,000. We are trying to make as many follow-on investments as possible but at the same time, we try to be objective even when we are investing in our existing portfolio companies. We are trying to evaluate them as if we see them for the first time and as if we don’t know them. When we make a follow on investments, we try to look at our portfolio companies whether they have a competitive advantage in the market, are they really the best team, can we really push them through, can we really participate and provide more values to the team rather than other investors.
Sometimes, as a stage goes up, maybe other investors can do more things than we do. And if there is a limitation of the investing rooms, then maybe we’re not the right investor. But we are trying to invest more in our existing startups.
Faire is relative. I don’t think there is a fair percentage. There is only a fair percentage of whether the entrepreneurs accept how much of their company they want to share with us.
Our target percentage is to take about 10% or anywhere in between. 5-20% is our range and the reason why we want to take 10% early on is to contribute more. We need our own motivation to help these companies grow. If it’s too low then it is reducing our own motivation.
That’s a very good question that I never thought of. Bear in mind that we’re an early-stage fund. We expect to have a hundred percent IRR. If the fund exists for eight years that’s about 10X. That’s the whole point. We expect 100X from a single deal.
We’ve been operating for about seven years and we don’t exit on purpose. Our investment strategy is not to exit during the middle and our aim is to help them all the way to become a unicorn and help them to go on IPO or to go through the acquisition. There are a couple of M&As, several middle way exits when strategic investors want to invest in them and one of our companies try to go IPO early next year. We’ve exited some of that. There are 134 companies in our portfolio and we want to stay with a company for 5-10 years and it ranges a lot.
Our funds are not just funds. We invest funds and also our own capital to the company. It’s probably easier to think about it as a SoftBank. They run businesses, they invest their own capital in companies and they created vision fund to invest in companies. We are actually investing our own money in companies at an early stage. We invest our own money and not the funds at the seed stage and we are free from exiting our money and paying back to our LPs for funds. That’s a little bit different. Fund usually lasts about 8-10 years and it has to be liquidated within that time. But our own capital has no restriction.
It depends on what the subject is. If we are confident in it and know it well, that doesn’t take so long. Since the company normally doesn’t have products but they probably have only research outcomes and team buildings, it’s pretty easy for us to do the due diligence. Usually, we don’t do much legal due diligence and we try to focus more on technical side. We would try to look at their IPs, published papers and things like that.
There are some subjects that we are not familiar with, like biopharma or airspace. For those areas it takes longer than usual. Anyway, we try to spend not too much time conducting due diligence and it takes us about six weeks to make an investment from the first investment meeting to signing a contract. Within that time, we assign one or two people to conduct the due diligence and if needed, we hire outside experts to conduct due diligence for us. That takes about two weeks. It could last longer or take less time, but on average we are shooting for six weeks.
A lot of media has asked me that question. We never really counted in single applications that we look at. We go through a lot and try not to slip on any good opportunities out there. I don’t know the exact number of the whole obligation amounts, but actually we count how many deals we met in person by anyone from our investment team this year. During the past 10 months we met about 600 teams. That’s somewhat serious and we typically are making about 30 investment deals a year what is 5% outcome.
We read all of our inbound messages. I’m sure it’s the same answer to a lot of early-stage investors. We try to meet as many startups as possible but our time is limited. We do meet, we do make an investment via cold emails, but the success rate is much lower in comparing to our existing networks from universities, research labs and other corporates. Probably the highest one is from our existing portfolio companies when they make an intro to us.
A lot of our team members went through science and technology-focused high schools as KAIST, which is like MIT of Korea. We keep close relationships with them and many of them are now working at Apple, Google, Facebook, Samsung and LG. When they think about starting a business we are probably on their top list to contact. It’s all a mixture of inbound, outbound, referrals and network with schools and corporates. We work with all of that.
We did not ignore cold calls and look at every single application or every single email that entrepreneurs have sent to us. Of course, we cannot meet everyone. One thing that makes us a little bit unique is we are still making an investment into other investors and accelerators. We are LP in 500 Startups. We are LP of AI-focused accelerator based out in Hong Kong. We have shares in a VC in Japan. In regions where we are not experts we try to make kind relationships with other investors and we get deals through them.
We do attend startup conferences. In fact, startups that come to these conferences range between super early stage to pre-gross area. FuturePlay’s focus in attending these events is to help our portfolio companies to build a more global presence. We help to bring them to TechCrunch Disrupt. We opened our own pavilion – FuturePlay pavilion at TechCrunch Disrupt – and invited about 10 of our portfolio companies. I think they do make sense but I don’t know if those conferences are the most efficient way to find deals.
Early-stage entrepreneurs have to do everything. They have to be as active as possible because building products and building technology is something that they must have. That is a prerequisite. That is something that we think they should do well. Other than that, they have to do their best to secure financing and talents. If founders are lacking those areas and only focusing on building products, the success rate is not so high. Yes, they are geniuses and they can build really great first products, but they cannot build a company themselves. They have to do a lot of activities and if the company runs out of money, that’s the CEO is not doing his job.
I think Korea is a very startup-friendly country or it has become one. We are actually one of the community members of COMEUP. It’s a pretty global conference. I personally haven’t been to RISE, but I heard good things about it. I’ve been also to the US version of Web Summit. Web Summit series are relatively good and TechCrunch is not so much. I was very disappointed and I don’t like to attend it anymore. There are many small regional events and they are good.
Various topics could be raised here, but one thing that really can break the deal at any stage is integrity. Lack of integrity or the founders who are faking is something that I cannot stand for. We have imagined that the entrepreneurs are all good people. But if the founders are lacking integrity, I don’t care whether they can become a unicorn or not. That’s not something that I want or a person that I want to engage with because it’s a business, but in the end investors and founders build personal relationships as well. And in any relationships, if there’s a lack of trust or integrity, it’s hard to work together.
I would say in most of the startups the founders that we work with are typically amazing engineers and geniuses in their field. They think if they created something, people will use it because founders love it. But that’s not true because they are outrageous people. Many deep tech companies lack the sense of their potential customers and typically our founders that we work with are having some hard time finding that product-market fit early on. So, even if they don’t have product-market fit that’s not the reason that we wouldn’t invest. We will try hard to help them find that.
It happens many times. We are trying not to regret. It’s not my deal, but our CEO passed on a company called Post. Have you heard of Venmo – the US money transferring app? This is a unicorn and Post has become a unicorn. Its legal name is Viva Repubblica. Our CEO find them six-seven years ago and he passed on because the founder was not willing to make the company a technology company. He thought that the UX and customers’ usability was more important and he was right. We need to make an investment because the company was not trying to become a more tech-driven company that we wanted.
Actually, everything that we talk about is all retroactive. Now we know that the company is good, but back in the day, maybe, we made the right decision. In my opinion, either way you make, you can’t regret it. But the most important thing is what do you learn from it. Just regretting for missing a deal or making an investment does not make us a better investor, because we learned from our mistakes. We have less chance of making mistakes in the future and we try to learn from them. From that point it’s probably important to keep an anti-portfolio, logging why we didn’t make that decision.
We haven’t changed that at all. Probably that’s mainly because we’re investing in future technologies. We always look for not what customers might look for in the next month or two above. We look for what will change our lives in the next 5-10 years. Luckily, COVID-19 has less impact on our portfolio companies and we haven’t changed our investment strategy.
That is both a threat and an opportunity. For investors who never thought of going in healthcare, it’s time to think about that. Companies, that were heavily focused on offline businesses probably should think about something else or different types of offline businesses. A lot of things will be done virtually. Now we are conducting a lot of meetings within Korea via Zoom. That changed a lot of our daily behavior and business styles. A lot of investors and investment strategies have changed.
In general, business is very much affected, especially a brick-and-mortar mom-and-pop stores, offline businesses, restaurants and supermarkets. Our portfolio companies are affected too, some in a good way, some in a bad way. But in neck to neck, all of our companies have been advantaged by the pandemic, because they are future technologists. Even before people were talking about contactless technologies our portfolio companies have been working on. When people are talking about telemedicine or distance monitoring, our portfolio company has been working on it. It’s an opportunity for them.