My Korean Quest for Entrepreneurship, Venture Capital and a Silicon Valley

Robots, underwater phones, online busses, fast follows and powerful vertical supply chains showed me a different model for innovation.

It’s three in the morning in Silicon Valley, or maybe it’s four. I don’t know. I’m exhausted. It’s been a marathon day of meetings, tours, interviews and promotional videos. The clock on my iPhone is telling me numbers that doesn’t seem to mean anything. Whatever time it is back home in Silicon Valley, its dinnertime in Daejon, South Korea.

I’m in Korea to search for entrepreneurship, startups and the conditions that could foster development of a venture capital ecosystem. I wrote about the rise of China, the post-IT future of Israel, the Russian government’s attempts at starting a venture capital industry, how India’s sagging infrastructure weighed on entrepreneurs, and most recently, how a new breed of investors was looking to tap into Africa. And now I was investigating Korea’s potential as an investment destination and its desire to launch a Silicon Valley-style innovation ecosystem.

I set out seeking a new destination for U.S.-style venture capital and small companies poised to grow. I came back from Korea with a greater appreciation for its unique innovation trajectory, technology commercialization process and the big conglomerates that dominate its industry. As much as parts of Korea wanted to be like Silicon Valley, I found myself wishing that parts of Silicon Valley would be more like Korea.

Korea has become increasingly powerful in the past half decade. Samsung and Hyundai have become true industry leaders. The government has actively promoted cleantech, setting aside huge stimuli for wind projects and in-home hydrogen fuel cells. And perhaps most interestingly, the large pools of Korean capital, such as the $250 billion Korean Pension System (KPS) are actively looking to diversify out of domestic bonds and into “alternative assets” such as venture capital and private equity. To put that last piece of data into perspective, KPS is about the size of CalPERS, which has invested in several hundred venture funds over the past decade and continues to be one of the largest supporters of the industry.

Better still, it hasn’t been rocked by a housing bubble and had only limited exposure to the global financial crisis. Seoul is full of new skyscrapers, expensive new cars cruise smoothly paved streets and new infrastructure projects such as roads and bridges dot the countryside.

It looked like a place where venture capitalists might also find success, especially given Korea’s technological prowess. I set off looking for Silicon Valley-style opportunities in the country’s biggest innovation hub.

DAEJEON DAYS & KAIST’S KIDS

Daejeon is sometimes called the Silicon Valley of Asia, though that’s a misnomer. It’s better to think of this region as the R&D capital of the Korea. It’s got 29 national labs, five major universities and 150 research and development facilities. That’s a lot of researchers for the country’s fifth largest city with a population of 1.5 million. A promotional video tells me that “Daejeon is blossoming the flower of its infinite potential.”

The city’s strength is centrally planned and supported with government subsidies. An official from the Korea Innovation Cluster Foundation explained that a section of the city was broken into five zones, each with a focus on some particular part of the technology ecosystem. This section is called “Daedoeok Innopolis.” Innopolis, the official explained, is a portmanteau of “innovation” and “metropolis.” To my mind, it sounded like the name of a Greek shipping magnate.

The R&D activity of the city gave me the same buzz that I’ve gotten from Cambridge, Palo Alto and other places where science thrives. Yet I don’t get the manic vibe of constant self-reinvention that one frequently sees in Silicon Valley, where it’s normal to work for 10 or more companies during one’s career. Many of the mid-level executives I’ve met with in Daejeon wear a golden pin on their jacket lapel advertising the company that they work for.

I asked many there about entrepreneurship and their desire to start their own companies. All acknowledged that entrepreneurship and innovation were important, but no one seemed interested in taking the plunge. Their ambitions, generally, were more focused on the work they were doing in their current positions rather than keeping a constant eye on the exits.

I thought this might be a generational issue. Entrepreneurship often attracts young people who have little in the way of an established career and may not yet have started a family. So I went to KAIST, a university billed as the MIT of Korea.

If the spark of Silicon Valley was to be found anywhere in Korea, I felt it must certainly be at a school with 10,000 students all bending their brains toward science and tech.

Our host at KAIST, the Korea Advanced Institute of Science and Technology, was Dr. Nam Pyo Suh, an impressive man that has authored 300 scholarly papers, secured 80 patents, wrote seven books, taught at MIT, ran part of the National Science foundation.

Suh gave the stats on KAIST: 10% of Korea’s science and technology professors studied at the school; it has an annual budget of $700 million, half of which comes in the form of grants brought in by professors; 90% of its research funding comes from the government; the school splits royalties from patents half-and-half with its researchers; all the courses are taught in English and most students were bilingual.

I wanted to know about entrepreneurship. One of the main drivers of Silicon Valley’s success as a technology hub is Stanford’s stimulation of new company formation and partnership with local investors. Could such a situation arise in Korea around KAIST?

“The development of new ventures is slower than I’d like to see,” Suh told me. He blamed two major factors. Money and desire.

The first was an absence of money. “The flow of venture capital here is not sufficient. If you take MIT, you don’t have to go very far to find money. There’s a large number of people hanging around MIT looking for students and researchers to give money to.”

This is true, of course. But money is one of the most fluid resources on earth, flowing to wherever the opportunities are. When China was a good place to make money, venture capital poured in. Same with India and Israel. To be sure, one has to have a reasonable certainty that there’s money to be made before committing to a foreign country and that’s usually proved by someone who goes in first and makes a fortune. So maybe Suh was right, you can’t get chickens without first having eggs.

The second reason entrepreneurship didn’t meet the university president’s expectations was because of the students. They were afraid to take risks. “More people are seeking secure jobs instead of taking a risk with their careers,” says Suh. He went on to say that if some of the 150 or so small companies around the university went on to succeed, students would take a hint and start thinking more about entrepreneurship.

While I was in Korea, a venture capitalist who had considered the country as an investment destination solidified this thought. He told me that in the U.S., parents dream of their sons becoming Steve Jobs and that in Korea, parents dream of their sons working at Samsung. I wanted to know if this was true. Did students at the country’s most prestigious engineering school want only to join big companies? I asked a room full of about 15 students, who each spoke perfect English and seemed like they would fit right in to any U.S. university, who among them was interested in entrepreneurship or hoped someday to start their own company.

One hand shot up. The 20-year-old to which it was attached, Su-Yi Wong, told me that she wasn’t sure what kind of business she wanted to start, but was sure she wanted to do it. “I don’t like working for another person,” she says. “I’m not a person who likes to do research and stay in the lab. I need an engineering degree to enter society. It’s a stepping stone for me.”

I hoped her attitude was demonstrative of a new generation of entrepreneurial Koreans yet found that she was Malaysian, as foreign in Korea as I.

HUBO THE ROBOT AND THE BENEFITS OF THE FAST FOLLOW

KAIST had impressive technology to show off. One of the school’s claims to fame is HUBO the robot, a bipedal relative of Japan’s Asimo robot. I was not able to meet the metal man myself, but an Australian tech journalist from our group did and I quizzed her on it:

Me: “So what was HUBO like?”

She: “A lot like Asimo.”

Me: “He must be different in some way.”

She: “Maybe. But you can’t tell by looking.”

I read up on the robot and found that he is an example of a pattern of technology endemic to this point in Korea’s industrial development: the “fast follow.” HUBO took about three years and $1 million to build, that’s compared to about two decades and $300 million for Japan’s Asimo, according to reports. HUBO was developed well after Japan’s Asimo, but the engineers at KAIST were able to rapidly catch up to a close equivalency in robotic capabilities.

The “fast follow” is a well-worn technology path that many economies go through. Japan may be the leader in today’s robotics, but it was once a fast follow in car making. Fast followers learn from the leaders, make use of new materials, tools or efficient procedures and optimize each step of the production process. Where innovators focus on concept risk and market readiness, fast followers focus on operational risk.

Hyundai, for example, is able to make dramatically lighter cars than many of its competitors because it owns the steel makers that supply custom-designed, ultra-light frames. Samsung makes the memory chips that go into its mobile phones and it also makes the memory that goes into Apple’s iPhone.

It’s a great place to be for a company and for a country. Many of Korea’s companies have been successful in recent years because of the benefits they’ve gotten from their integrated supply chains and size. Last year, Korea had about a third of the unemployment that the U.S. did and grew GDP twice as fast. Korean companies don’t often outsource manufacturing, either. That helps ensure that each KRW spent in Korea on a Korean-made product stays in Korea.

You can see signs of progress all through Korea. New urban skyscrapers poke the sky, the shopping centers are shiny and well-stocked and public spaces are well maintained. One gets the sense that the rising tide of economic prosperity in the country has raised many boats.

It bears a stark contrast to the U.S.’s deteriorating infrastructure, high unemployment and ongoing unrest associated with income inequality.

THE UNDERWATER PHONE, THE ONLINE BUS AND ENGINEER PLAY

LG Electronics proudly calls itself a fast follower, though after a tour of its factory, I wasn’t sure whom exactly they were following. Most of what I saw seemed like the engineers had been given free reign to design and create interesting concepts in search of markets.

The company showroom was lovely, with polished floors and ultra-bright inlaid ceiling lights that made the place feel just like being inside of a flat-screen TV. Yet the products on display felt a little like they had come from an imagined future that never came. Consider the watch that also serves as—wait for it—a phone. Dick Tracy would have been proud.

There were other examples. The telephone that worked underwater, for instance. A real engineering feat with a ton of technology baked into it. Certainly anyone who has ever dropped a phone into a toilet or been caught in a sudden rainstorm might appreciate waterproof electronics, but I couldn’t imagine that feature alone encouraging me to get rid of my iPhone.

It almost felt as though the company’s engineers had been tasked to play around with new technologies with little or no regard for their practicality or potential market viability. Products were built with a “can we do it?” mentality instead of a “will people buy it?” focus. The internet-enabled refrigerator, for example, allowed you to browse the web, watch a movie, or take a picture. This fancy fridge, with its inlaid LCD screen had all the functionality of an ultra-portable tablet computer, only without the portability.

To be sure, most major electronics manufacturers have such interesting but useless products sprinkled into their showrooms. And focusing solely on these items downplays the big bet LG has made on 3D television, cameras and eyewear. Seeing these products in action was impressive and it’s easy to imagine burgeoning consumer demand for these products over the next several years.

But the day I was at LG, its manufacturing lines weren’t humming along. The head of public relations said it was due to the global slowdown in demand for electronics. Two days after my visit, LG put out less-than-impressive earnings and the stock dropped 14 percent.

Silicon Valley startups spend a lot of time and energy thinking about what customers want and how big a market their innovations might address. They have to be laser focused on the biggest opportunities thanks to the discipline of constant cash restrictions.

LG does work with startups and other small companies, but it seldom acquires technology companies. I left wondering what the addition of new, entrepreneurial thinking would do for the manufacturing giant. If somehow that diligent pursuit of new markets and customer demands would focus its product lines and help it find a new footing.

I frequently felt that Korean innovators focused on proving a concept or showcasing a technology instead of building something the market needed. The “Online Bus” convinced me of this more than anything else I saw.

The Online Bus is an ambitious project developed at KAIST to create an electric bus that charges as it drives around, never plugging in and never hooking up to power cables. It gets its juice from high-power electrical wires embedded into the street. The wires induce a charge in the bus batteries when the bus passes overhead. It is very green and pitched as a solution to reduce urban pollution.

I rode the Online Bus and was impressed until I started seriously thinking about the market for it. Embedding electrical wires into miles of city roads would be a seriously expensive undertaking, especially when compared to running electrical wires above the ground as is already done in many cities. I couldn’t imagine a cost-conscious U.S. city adopting it.

DIFFERENT, BETTER, WORSE AND PERSPECTIVE

But I liked it. The Online Bus, the Internet-Fridge, the underwater phone. These things were fun. They felt as though they were the product of engineers at play, highly skilled technical people showing off what they could do.

These weren’t social games designed to separate you from your time and money. They weren’t trivial iPhone apps or even highly-focused enterprise software offerings. It was something different altogether, something more ambitious. It made me a little embarrassed for Silicon Valley, which seems to have lost its capacity to dream big dreams.

Again and again I asked people in Korea about startups and entrepreneurship. The government has programs specifically designed to encourage young people to start new businesses, a remarkable technical and engineering literacy, the capacity to rapidly produce new products at scale and a market of some 50 million potential customers. It seems perfect for U.S.-style venture capital. Countrywide generalizations are always overly broad and fail to account for the outliers of any society, yet there doesn’t seem to be a willingness on behalf of Korea’s people to pursue this path.

Nor are big companies interested in acquiring startups. The executives I met with seemed mired in a Not-Invented-Here mindset and were unwilling to assimilate outside innovations, ideas or entrepreneurs. Outsiders were welcome partners but not looked upon as potential employees. It stood in stark contrast to the large technology companies of Silicon Valley which readily swallow startups. These tech powerhouses are anxious to get the people working at startups. There’s even a term for buying a startup just to get access to the remarkable engineers and innovators that work there: acqui-hire. An extreme at the other end of the spectrum.

Cultural differences such as this are significant and numerous. And as I prepared to leave Korea, I became convinced that it was not ripe to become a hotbed of entrepreneurship and Silicon Valley-style innovation.

Korea is on its own innovation trajectory. Its progress will be at scale, with massive new projects planned in cleantech and at the big manufacturing conglomerates. It will be egalitarian too, spreading the wealth that’s created out over large corporate structures. It’s a place to see continual progress instead of overnight success.

Seoul was nice too with the dramatic skyline of a megacity on the move and the bustle of progress. You could see how things were getting better there.

As I waited for my flight back to the U.S. in the lovely Incheon airport, I finally got a grasp on the time difference. After being wowed by new technologies, the power of integrated supply chains and the “fast follow” going home felt like going back in time. I was leaving an airport constructed in 2001 for the dilapidated LAX, built in 1961. I’d catch a connector back up to Silicon Valley, where people were diligently working on “minimally viable products” and finding new ways to market aging technologies.

I would be leaving Seoul in the evening and arriving in Los Angeles for my connecting flight in the early afternoon of the same day. Literally traveling back in time.