On August 25th, Share Hub and sopoong organized a lecture for sharing companies and would-be sharing start-ups that are interested in attracting investment at CoW&DoG. People often feel they don’t know what to do when they start a company as there are simply too many things they have to consider and prepare. And when it comes to investment, people find it particularly difficult since it involves making an appeal to investors who don’t know much about their business and proving their potential thoroughly. Recognizing such needs, Share Hub and sopoong organized an event to invite investors to talk about their key points in making an investment and to learn about experiences and strategies of sharing companies who received an investment.
Venue: C50, CoW&DoG
Date: Auguest 25th, 2016
PART 1: Investment trends and strategies by sopoong
“Look at the scale-up potential of company and resulting social impact” – HAN, Sang-yeop, CEO of sopoong
In Part 1, CEO HAN, Sang-yeop from sopoong, a company that started to pay attention to sharing economy and sharing companies earlier than any other venture capital firms in Korea and has invested in a lot of related start-ups, shared his story. sopoong is a company that not just gives seed money to start-ups but also plays the role of an incubator of social ventures. Promising sharing companies sopoong has invested in so far include: SOCAR, one of the largest car-sharing services in Korea; tumblbug which recently reached 10 billion Korean Won of accumulated donation; and Wisdome which focuses on sharing knowledge and experience.
What then are the key elements sopoong looks for from a social venture when it makes an investment decision? Han emphasized three points: firstly, whether the company offers a more agile, sustainable, and fundamental solution to a “social issue”; secondly, whether the “founders” are committed to maintaining its independence and to running their business through cooperation and coexistence; and thirdly, whether the company pursues “venture approach” which means pursuing passions, being technology-based, and valuing the importance of speed and growing fast.
Companies invested by sopoong so far can be categorized into two, considering the overall ecosystem of sharing companies: There are services that deal with tangible resources in such areas as transportation (SOCAR, Uber), space (Airbnb, Osharehouse), finance (tumblbug, 3000won, Bplus) and goods (Kiple); and there are services that focus more on intangible resources in such areas as experience, knowledge, know-how, and human resources (Skillshare, Wisdome). As these companies are doing their business in the existing market and the only difference is that they are using “sharing” as method, they have more opportunities to scale up and to get funding if the existing market they are in is bigger, the amount per transaction is larger, and their business item is easier to be copied and more scalable.
Han pointed out that while companies dealing with intangible resources have an advantage in attracting investment since there are much more success stories and simple indicators to assess their achievements, companies dealing with intangible resources need to pay attention to costs because offline costs are relatively high and labor costs consume big proportion of the total revenue, which as a result can lead to lower scalability of the company. He took the example of “Pixel” as a company dealing with intangible resources that improved their business structure to solve the labor cost issue by shifting from P2P transaction to mass pickup system and finally scaled up by 500%.
In sum, the key condition for attracting an investment is “scalability and its impact.” As an example, he told that SOCAR was similar to conventional rental car business in terms of the way of transaction. However, he decided to invest in the company since the company had a clear direction and design for the future of the business to scale up, and consequently it seemed the company would have tremendous value in terms of the social impact it would bring to our society. And he added that that would also applied to other investment decisions.
“Be prepared to answer any questions from your potential investors, anywhere and at any time” – LIM, So-hee, Manager at sopoong
The next presenter was LIM, So-hee, manager at sopoong who talked about what investors looked for and key questions investors asked always. In relation to what Han said during his talk, these questions boil down to a question about whether the company can survive until the point it achieves a scale-up and realizes the social impact it has promised.
Questions to assess a company’s survivability
Who is the service for?
Is the market growing or does it have a potential to grow?
What benefits do its customers get?
What is its customer lifetime value?
What achievements did it make? Is the model working?
How much does it cost to gain a customer compared to customer lifetime value?
What advantages does it have compared to competitors?
How much funds does it need?
Where does the funds need to be spent for the company to scale up?
Is its strategy easy to be copied?
Have they reached a consensus among its members regarding its vision and growth strategies?
PART 2. Step-by-step know-how on attracting investment from experienced sharing companies
Part 2 was dedicated to listening to the real stories of sharing companies who had succeeded in receiving investment including Osharehouse, a share house for college students and young people, and Wisdome, a company that runs human library program based on experience and knowledge sharing. What made them successful in attracting investment? What would differentiate them with others?
“We had sincerity as we started from an important social issue and proved that the invested money was being used for ‘growth,’ and I think that played an important part.” – OH, Jeong-ik, Osharehouse
Osharehouse didn’t have much knowledge about sharing company when they started. They started the company out of their concerns about the serious social issue of notoriously high housing costs and poor housing environment of single-person households in urban areas. From that point, with a mission of reducing housing costs and improving housing conditions for residents and of guaranteeing an average of 5% to 8% of stable profits through registration of leasehold rights, they developed a share-house business model that starts from college districts and expands to other cities.
As a crucial factor that made them successful in securing investment, they pointed out that they tried to minimize labor costs by limiting the core management to the three co-founders and collaborating with partners such as S1 (security), Cesco (sanitation), and NEWS BANG (media) in areas where they lack capabilities and focused on growing the company with the secured money. The company will continue to seeking to expand their partnerships as they grow further.
“It is important to think over if your company really needs the investment now. – KIM, Jong-seok, CEO of Wisdome
KIM, Jong-seok, CEO of Wisdome, a company for sharing experience and knowledge, said that a reckless pursuit of receiving investment could become a risk in the longer term. At the start of a business when you make an important decision, the existence of an investor who gives you seed money and usually has large stakes can sometimes put an obstacle in making decisions. According to Kim, what is needed for sharing startups in their early stage is an incubator rather than financial investment. He points out that while investors investigate and verify a company, it is also important for the company to investigate whether the investor is someone who can provide necessary advice based on experience and whether he or she can agree and provide help in decision making.
Regarding his know-how on receiving investment, he emphasized that it was important to keep constantly communicating with the investor, to show the past, present and future of the company, and to demonstrate its commitment to not giving up and confidence that the will survive. And he also suggested planning out a model with the context and flow of the company through benchmarking, rather than creating an entirely new and creative model as his know-how. He added that use the investment money for marketing or something that help the growth of the company, rather than labor costs that are spent on short-term survival.
After the lectures, Han Sang-yeop from sopoong, Oh Jeong-ik from Osharehouse, and Kim Jong-Seek from Wisdome sat together to answer questions and share ideas. Asked about what had changed since investment, Kim said that he felt more relaxed and that helped him in decision making on what to give up and what to keep in running his business.
Asked about when was the right time to get investment, he said the most appropriate time was when the company was starting to be on the growth curve and in addition when the market was starting to grow.
To the last question asking which was more important between “social impact” and “business” to sharing companies, he said both would be equally important, and added that while social impact and value of a business were to be discussed and determined in its early stage based on “sympathy” and “acceptance” according to the flow of the society and times, in later stages a constant efforts to verify the growth potential and sustainability was required from business perspective.
Lastly, Kim, Dong-seup from Sharing City team of the Seoul Metropolitan Government introduced Sharing City Seoul projects and provided a guide on the third round of the city’s Sharing Companies designation program. Stefan from Social Enterprise NL in the Netherlands briefly introduced the platform organization’s activities to support social ventures and an upcoming meet-up event.
As it was organized as an event to share the recent trends in investment in sharing companies and their strategies, there was a serious and intense exchange of ideas. And it was an enlightening occasion to learn key points that are important for the longer-term sustainability of a company rather than for its survival in the short term, from the real stories of investors in the field and experienced sharing companies such as Osharehouse and Wisdome.
Let’s hope we can see more events like this one happen in the future and help boost investment in sharing companies in Korea.