"We held about 150 investor relations (IR) presentations, but not a single place said it would invest." There is a startup that has been courted by major Korean companies such as Samsung Electronics and SK hynix as well as global firms, yet ultimately failed to secure investment in Korea and left for overseas. It is AIBIZ, an industrial artificial intelligence (AI) company. Founded in 2020, AIBIZ moved its base to the United States in 2023 after its technology was not valued in Korea. Since then, U.S. investors have continued to invest, and the company has kept up steep growth. Startups, the engines of future growth, are leaving Korea. A growing number of companies that set up a corporation in Korea and struggled to attract investment are pursuing a so-called "flip," relocating their headquarters overseas. Some choose to be founded overseas from the start. This is because the investment environment for startups is favorable, the market is large, and initial public offerings (IPOs) are relatively easy in countries such as the U.S., China and Japan. As cases of Korean startups moving abroad increase, concerns are growing over the outflow of talented people and damage to the domestic startup ecosystem. "VCs who can't read future value": deep-tech startups at their wits' end Ha Seung-jae, CEO of AIBIZ (pictured), started his company in 2020 with technology that uses AI to raise manufacturing process efficiency. He judged that the market where AI adoption would have the greatest effect was semiconductors. At the time, Korea's foundry (contract chip manufacturing) industry was struggling with low yield (the proportion of good products among finished products). At 15 to 20 percent, it lagged far behind the world's No. 1, Taiwan's TSMC. Seeing the market's potential, he began developing an AI model specialized for semiconductor processes. He was confident. He had spent decades on factory floors and knew field needs well, and he also had expertise from his master's and doctoral studies in graduate school. But reality was cold. One to two years after founding, there was still no word on investment. Using government startup support programs such as the Pre-Startup Package, the Initial Startup Package and the Startup Leap Package, he held about 150 investor relations (IR) presentations for venture capital (VC) firms, but not a single one said it would invest. "No matter how much I explained to VC reviewers, the question that came back was, 'What is the difference from other IT companies' technology?'" Ha said. "Industrial AI is completely different from generative AI in that domain knowledge must be reflected and it is important to design solutions that fit the field, but they only tried to judge our technology by the yardstick used for generative AI." Even though AIBIZ had new technology that had won the 'IR52 Jang Yeong-sil Award', which honors companies with outstanding new technology products and research results, it was helpless in the face of the venture investment industry's practice of shunning 'risk.' Ha recalled, "One VC expressed interest in investing and asked for a proof of concept (PoC), and when we completed it, they kept delaying, saying 'we'll give you money if you win the PoC competition, we'll give you money if the pilot operation succeeds, we'll give you money once revenue is generated,' and in the end we never received the investment." The time of heartache grew longer. There was no revenue in hand, yet the personnel needed for research and development (R&D) kept increasing. Even employee salaries began to be delayed. He borrowed help from family and friends and even took out a loan against Ha's personally owned apartment. Scraping together government subsidies and Korea Credit Guarantee Fund loans, he barely held on month by month. Meanwhile, AIBIZ completed 'DutchBoy,' an AI platform specialized for semiconductor processes, and released it to domestic and overseas markets. It gradually expanded business with major Korean companies such as Samsung Electronics, SK hynix, LG Innotek and Samsung Electronics subsidiary SEMES, as well as U.S. customers. It was around this time that Ha began to dream of entering the U.S. Unlike in Korea, the U.S. market could recognize a higher corporate valuation, and local investors made investment decisions purely on technological capability. To seek new opportunities in the U.S., the company separately established a U.S. corporation, 'AIBIZ Global,' in Silicon Valley in 2023. "In the U.S., there are many investors who want to invest by looking at the future value of the technology even when there is no revenue yet," Ha confided. "There was no demand to bring contracts with large corporations as in Korea, so it felt reasonable." "There is no hope in Korea": startups head to China, Japan and Southeast Asia The U.S. is not the only destination for startups leaving Korea. Korea once held a firm position as Asia's startup hub, but that is long a thing of the past. The pace at which Korean startups leave for China, Japan and various parts of Southeast Asia is accelerating. According to venture investment information firm THE VC, as of May this year there were 203 startups headquartered overseas. That is about six times the 32 in 2014. The number of startups headquartered overseas rises every year. It grew from 139 in 2020 to 186 last year, and more than 20 have been added this year alone. Allganize, a large language model (LLM)-based all-in-one solution company, is a case of moving its headquarters to Japan. After establishing the corporation Allganize Japan in Tokyo in 2019, it relocated its headquarters altogether in 2021. Having secured large customers such as Tokyo Metro and Sumitomo Mitsui Banking Corporation (SMBC), it now generates more than 60 percent of its revenue in Japan as of the end of last year. Online marketing company Cowlio Bliss and mobile advertising marketing company Hwadong Media are headquartered and provide services in China. The reason they are moving to Japan and China is simple: growth potential. In China, the government actively supports startups, and the startup market is so hot that the number of 'unicorn companies,' unlisted firms valued at over 1 trillion won, has far exceeded 200. In Japan, unlike Korea where the IPO market has frozen, the Growth market, Japan's version of KONEX, is well established, and it is said to be easy for venture companies to list. Recently, generative AI company Upstage also set up a corporation in the Japanese market following the U.S. market. Although the number of startups leaving for overseas grows every year, the government still lacks even proper statistics. KOTRA tallied startups expanding overseas until 2022, but the count has been discontinued since. As complaints about the Korean startup ecosystem grow and cases of leaving for overseas increase, the Ministry of SMEs and Startups, the relevant ministry, has only recently commissioned a research service to investigate the actual state of startup flips. Professor Lee Jung-hee of the Department of Economics at Chung-Ang University believes the VC industry's investment practice of considering only profitability has encouraged flips. "What matters is how well VCs see the potential and value of portfolio companies, and that is the very competitiveness of a VC, but only low-risk investments are being made," he said, adding, "Because they keep focusing only on profitability, value investing, which looks at portfolio companies' technological capability, is weak." He added, "It seems necessary for the government to set various investment criteria and create incentives for those who invest while taking on risk," and "there must be a set of standards, based on a good analysis of VCs' past investment records, so that fund of funds do not focus only on short-term results." Sung Chang-soo, head of the Department of Technology Entrepreneurship at Dongguk University, advised that accelerators (ACs), which discover and nurture early-stage startups, need to become more active in order to draw out active VC investment. "If ACs discover technologically outstanding startups at the front end and carry out a kind of vetting, they could draw out more VC investment," he said, adding, "It is necessary to ease regulations on ACs and provide institutional support." Reporter Jo Si-young ibpro@asiae.co.kr Reporter Lee Seung-jin promotion2@asiae.co.kr Reporter Kim Dae-hyeon kdh@asiae.co.kr Reporter Kwon Hyeon-ji hjk@asiae.co.kr | Source: Asia Economy | https://www.asiae.co.kr/article/2025052014401661524