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Driving Innovation in South Korea: Naver and Kakao’s Role in Incubating Startups.

Photo by Marvin Meyer / Unsplash

The South Korean IT industry is dominated by two major players: Naver and Kakao.

These companies, ranked fifth and eighth in the stock market, play a role similar to that of Google, Amazon, Facebook, and Apple in Silicon Valley. They are the incubators of the startup ecosystem and drive innovation in their home country.

Naver has a strategy of acquisition, technology advancement, and further acquisition. The company has made 45 investments totaling KRW 390.5 billion (USD 320 million) and focuses on late-stage startups.

For example, in December 2017, Naver acquired Drama&Company, a business card management application with 2.5 million users. Naver also invested in Snow, a social media app similar to Snapchat that targets the 10- and 20-year-old age group. Despite continued deficits, the company has steadily increased paid-in capital to grow its subscriber base.

Naver D2 Startup Factory’s Technology VerticalSource: Naver D2 Startup Factory Screenshot

Naver also operates D2 Startup Factory, a subsidiary focused on early-stage startups. Founded in 2015, the company has made 51 investments totaling KRW 6.6 billion (USD 5.5 million), most of which were early-stage investments.

Naver has launched startups in AI, robotics, data analytics, autonomous driving, digital health, education, and beauty and acquired some of them.

Kakao, including its subsidiary Daum, has made 26 investments totaling KRW 199.1 billion ($170 million) since 2011. In addition, theIn addition, the company operates two dedicated venture capital firms, Kakao Ventures, and Kakao Investment, which have made 194 investments totaling KRW 229.3 billion (USD 190 million).

Kakao Ventures focuses on early-stage startups, investing an average of KRW 800 million, mainly in the gaming, fashion, food tech, biotech, and edtech sectors. Kakao Investment, on the other hand, focuses on mid-to-late-stage startups with an average investment of KRW 5.3 billion and a strategy to drive IPOs, mergers, and acquisitions and find new business models through startups. The goal is to hold 30% of the shares after an IPO.

Kakao Ventures, Source: Homepage

One example of an IPO by Kakao is the gaming company, Neptune. Kakao was involved in the early stages through Kakao Ventures and later through Kakao Games and now holds the second largest shareholding. Another example is LocNAll, a popular national mapping, and navigation service provider Kakao acquired to accelerate its mobility service and applications.

Overall, Naver and Kakao are important in promoting innovation and creating startups in South Korea’s IT industry. Their strategies and investments show that they focus on different stages of startups and sectors.

Our team wrote the founders from a Kakao background. So you can read and check the internal culture as well.