[StartupRecipe] Risks Loom for M&A Market

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#Weekly Funding Overview

[April. 17 ~ April. 21]

The total funds raised by Korean startups of this week is KRW 36 billion.

Company	Inudustry	Amount	Round	Investors
AENTS	Climate tech	2 billion	Series A	Invisioning Partners, Smilegate Investment
Earlypay	Fintech	-	Seed	Seoul Techno Holdings, MYSC, Kiwoom Investment
S- materials	Materials	-	Grant	TIPS
CLA Corp.	Creator matching	-	Grant	TIPS
Hatchery	Agriculture	-	Grant	TIPS
CURRENTIVE	K-Beuaty	-	Seed	Wishcompany
Episoden	Education	-		DT&Investment, Colopl Next
Smartcelllab	Bio	2 billion	Series A	Suheung, DK&D
Epigen	Bio	-	Grant	TIPS
Myfair	Fair registering solution	-	Grant	TIPS
Taxby	Tax	-	Grant	TIPS
Sengdo	Lifestyle brand	-	M&A	Prain Global
Nudge healthcare	Healthcare	30 billion		Korea Investment Partners, Shinhan Capital, Shinhan Investment & Securities
Worker's High	Proptech	-	Pre-Series A	Lotte Ventures, Lotte Chilsung, Hanyang University Technology Holdings, ROI Investment Partners
SAPEON	Hyper-Cloud AI Processor	-		GS E&C, GS Neotech, Daebo Group
Algocare	Healthcare	-		D.CAMP
Jarasoft	Design SaaS	-	Seed	The Invention Lab
Payhere	POS	20 billion	Series B	Goodwater Capital, Smilegate Investment
Nei&Company	Mobility	800 million		NBH Capital, MYSC
Munto	Community Platform	5.2 billion	Series A	IMM Investment, Daekyo Investment, Bon Angels Venture Partners, Z Venture Capital
Foodnote service	Digital management platform	3 billion	Series A bridge	Tigris Investment, Haesung Investment
HIGHERX	Gig worker platform	-	Grant	TIPS
Headless	headless commerce D2C SaaS	-	Grant	TIPS

Major Funding

• Golf practice brand Show Golf has raised investment and been valued at KRW 70 billion. Show Golf, which has gained popularity among golfers with its unique concept, will use the secured funds to acquire all shares of Green Works (XGOLF) held by existing investors YG Plus and Naver, and merge with the company. After the merger, Show Golf plans to go public and open new company-owned golf practice facilities this year.
• AI development platform LablUp has secured KRW 10.5 billion in investment. The company operates a platform called “Backend.AI,” which efficiently manages GPUs, AI chips, and data required for AI learning and services. Currently, Backend.AI is being used by more than 70 domestic conglomerates and institutions, including Samsung Electronics, KT, LG Electronics, and CJ. LabelUp plans to expand its market to global AI platform solutions beyond Korea.
• Autopedia secures KRW 13 billion in funding. The company operates the auto after-market management platform, Doctor Car, and distributes imported car parts and consumables to affiliated repair shops while also launching its own specialized imported car repair brand. The company plans to use the investment to complete the vertical integration of its online and offline auto after-market business.

#Trend Analysis

Risks Loom for M&A Market

Investment activity has been sluggish, with investments plummeting nearly 80% in Q1 2023 compared to the same period last year. However, the mergers and acquisitions (M&A) market has remained relatively active. Many investors anticipate more M&A deals this year, as the weakened market presents an opportunity to acquire promising companies at a lower cost. Financially distressed companies may also be more likely to sell. Nevertheless, M&A deals only saw a modest increase in Q1 2023, with around 30 deals completed, which is not a significant rise from Q1 2022. Potential risks could also result in a decline in the M&A market.

One contributing factor to this lack of growth is the decrease in startup acquisitions by large companies. In 2021, major conglomerates such as GS Retail, Lotte, and Shinsegae, as well as IT companies like Kakao and Naver, were actively acquiring startups. However, the number of large-scale acquisitions began to decrease in 2022, and this year there have been no notable cases of large-scale M&A between startups and conglomerates. Even strategic acquirers are finding it difficult to make acquisition decisions due to unpredictable economic conditions, making due diligence and negotiations more time-consuming.

Startup absorption by unicorns and pre-unicorns has also slowed. Last year, companies like Kurly, Zikbang, and Yanolja acquired startups or parts of large companies, and wannabe unicorns made multiple acquisitions to increase their scale. However, this year’s first quarter saw no startup acquisitions by unicorns. Many wannabe unicorns that made excessive acquisitions last year are restructuring due to funding difficulties, causing their startup shopping to come to a halt. Even those unicorns with the funds are focusing on improving their profitability and are cautious about acquiring startups.

Filling the void of fewer big company and unicorn M&A deals are startup-to-startup acquisitions, which are still on the rise. Most of the startups that reported M&A news in Q1 were acquiring startups, either by absorbing their peers to become more competitive and enter new businesses or by merging with them to gain an edge in an increasingly competitive market. While there were also cases of acquiring companies that had gone out of business due to market deterioration or whose value had fallen, the amount of the acquisition was not disclosed, and the scale was not large.

To revitalize the market, the government has announced the abolition of the obligation to invest new shares in merger and acquisition funds. While the current situation may be maintained in terms of quantity, whether there will be significant cases of mergers and acquisitions in terms of quality will depend on the market situation.