Payment service Toss becomes Korea’s newest unicorn after raising $80M

South Korea has got its third unicorn startup after Viva Republica, the company beyond popular payment app Toss, announced it has raised an $80 million round at a valuation of $1.2 billion. This new round is led by U.S. firms Kleiner Perkins and Ribbit Capital, both of which cut their first checks for Korea with this […]

South Korea has got its third unicorn startup after Viva Republica, the company beyond popular payment app Toss, announced it has raised an $80 million round at a valuation of $1.2 billion.

This new round is led by U.S. firms Kleiner Perkins and Ribbit Capital, both of which cut their first checks for Korea with this deal. Others participating include existing investors Altos Ventures, Bessemer Venture Partners, Goodwater Capital, KTB Network, Novel, PayPal and Qualcomm Ventures. The deal comes just six months after Viva Republica raised $40 million to accelerate growth, and it takes the company to nearly $200 million raised from investors to date.

Toss was started in 2013 by former dentist SG Lee who grew frustrated by the cumbersome way online payments worked in Korea. Despite the fact that the country has one of the highest smartphone penetrations rates in the world and is a top user of credit cards, the process required more than a dozen steps and came with limits.

“Before Toss, users required five passwords and around 37 clicks to transfer $10. With Toss users need just one password and three steps to transfer up to KRW 500,000 ($430),” Lee said in a past statement.

Working with traditional finance

Today, Viva Republica claims to have 10 million registered users for Toss — that’s 20 percent of Korea’s 50 million population — while it says that it is “on track” to reach a $18 billion run-rate for transactions in 2018.

The app began as Venmo -style payments, but in recent years it has added more advanced features focused around financial products. Toss users can now access and manage credit, loans, insurance, investment and more from 25 financial service providers, including banks.

Fintech startups are ‘rip it out and start again’ in the West –such as Europe’s challenger banks — but, in Asia, the approach is more collaborative and assistive. A numbe of startups have found a sweet spot in between banks and consumers, helping to match the two selectively and intelligently. In Toss’s case, essentially it acts as a funnel to help traditional banks find and vet customers for services. Thus, Toss is graduating from a peer-to-peer payment service into a banking gateway.

“Korea is a top 10 global economy, but no there’s no Mint or Credit Karma to help people save and spend money smartly,” Lee told TechCrunch in an interview. “We saw the same deep problems we need to solve [as the U.S.] so we’re just digging in.”

“We want to help financial institutions to build on top of Toss… we’re kind of building an Amazon for the financial services industry,” he added. “We try to aggregate all those activities, covering saving accounts, loan products, insurance etc.”

Former dentist SG Lee started Toss in 2013.

Lee said the plan for the new money is to go deeper in Korea by advancing the tech beyond Toss, adding more users and — on the supply side — partnering with more companies to offer financial products.

There’s plenty of competition. Startups like PeopleFund focus squarely on financial products, while Kakao, Korea’s largest messaging platform, has a dedicated fintech division — KakaoPay — which rivals Toss on both payment and financial services. It also counts the mighty Alibaba in its corner courtesy of a $200 million investment from its Ant Financial affiliate.

Alibaba and Tencent tend to move in pairs as opposites, with one naturally gravitating to the rivals of the other’s investees as recently happened in the Philippines. It’s tricky in Korea, though. Tencent is caught in limbo since it is a long-standing Kakao backer. But might the Ant Financial deal spur Tencent into working with Toss?

Lee said his company has a “good relationship” with Tencent, including the occasional home/away visits, but there’s nothing more to it right now. That’s intriguing.

Overseas expansion plans

Also of interest is future plans for the business now that it is taking on significantly more capital from investors who, even with the most patient money out there, eventually need a return on their investment.

Lee is adamant that he won’t sell, despite Viva Republica increasingly looking like an ideal entry point for a payment or finance company that has missed the Korean market and wants in now.

He said that there are plans to do an IPO “at some point,” but a more immediate focus is the opportunity to expand overseas.

When Toss raised a PayPal-led $48 million Series C 18 months ago, Lee told TechCrunch that he was beginning to cast his eyes on opportunities in Southeast Asia, the region of over 650 million consumers, and that’s likely to see definitive action next year. The Viva Republica CEO said that Vietnam could be a first overseas launchpad for Toss.

“We’re thinking seriously about going beyond Korea because sooner or later we will hire saturation point,” Lee said. “We think Vietnam is quite promising. We’ve talked to potential partners and are currently articulating ideas and strategy materialized next year.

“We already have a very successful playbook, we know how to scale among users,” Lee added.

While the plan is still being put together, Lee suggested that Viva Republica would take its time expanding across Southeast Asia, where six distinct countries account for the majority of the region’s population. So, rather than rapidly expanding Toss across those markets, he indicated that a more deliberate, country-by-country launch could be the strategy with Vietnam kicking things off in 2019.

The Toss team at HQ in Seoul, Korea

Korea rising

Toss’s entry into the unicorn club — a vaunted collection of private tech companies valued at $1 billion or more — comes weeks after Coupang, Korea’s top e-commerce company, raised $2 billion at a valuation of $9 billion.

While that Coupang round came from the SoftBank Vision Fund — a source of capital that is threatening to become tainted given its links to the murder of journalist Jamal Khashoggi — it does represent the first time that a Korea-based company has joined the $100 billion mega-fund’s portfolio.

Some milestones can be dismissed as frivolous, but these two coming so close together are a signal of increased awareness of the potential of Korea as a startup destination by investors outside of the country.

While Lee admitted that the unicorn valuation “doesn’t change a lot” in daily terms for his business, he did admit that he has seen the landscape shift for Korea’s startup ecosystem — which has only two other privately-held unicorns: Coupang and Yello Mobile.

“More and more global VCs are aware that South Korea is a really good opportunity to do a startup. It is getting easier for our fellow entrepreneurs to pitch and get access to global funds,” he said, adding that Korea’s top 25 cities have a cumulative population (25 million) that matches America’s top 25.

Despite that potential, Korea has tended to focus on its ‘chaebol’ giants like Samsung — which accounts for a double-digital percentage of the national economy — LG, Hyundai and SK. That means a lot of potential startup talent, both founders and employees, is locked up in secure corporate jobs. Throw in the conservative tradition of family expectations, which can make it hard for children to justify leaving the safety of a big company, and it is perhaps no wonder that Korea has relatively fewer startups compared to other economies of comparable size.

But that is changing.

Coupang has been one of the highest profile examples to follow, alongside the (now public) Kakao business. But with Viva Republica, Toss and a charismatic dentist-turned-founder, another startup story is being written and that could just inspire a future generation of entrepreneurs to rise up and be counted in South Korea.

Korean e-commerce firm Coupang raises $2 billion from SoftBank’s Vision Fund

Just days after a CIA report concluded that Saudi Crown Prince Mohammed bin Salman ordered the murder of journalist Jamal Khashoggi, SoftBank’s Vision Fund — the gargantuan investment vehicle anchored by a $45 billion investment from Saudi Arabia’s PIF sovereign fund — is back in check-writing action. Coupang, Korea’s largest e-commerce firm, revealed today that it has […]

Just days after a CIA report concluded that Saudi Crown Prince Mohammed bin Salman ordered the murder of journalist Jamal Khashoggi, SoftBank’s Vision Fund — the gargantuan investment vehicle anchored by a $45 billion investment from Saudi Arabia’s PIF sovereign fund — is back in check-writing action.

Coupang, Korea’s largest e-commerce firm, revealed today that it has raised $2 billion from the Vision Fund. The investment comes weeks after SoftBank’s stake in Coupang was transferred over the Vision Fund, as the firm has done with a number of its investment.

No valuation was announced, but a source close to the deal told TechCrunch that it values Coupang at $9 billion post-money. This deal, which we understand is entirely new stock with no secondary sales, takes Coupang to $3.4 billion raised to date. Its last round was a $1 billion investment from SoftBank in 2015.

The deal is a massive validation for Coupang, which becomes the first Korean company to form a part of the Vision Fund, which SoftBank Chairman Masayoshi Son has championed as a network of global winners, but the link to the Khashoggi threatens to sour the achievement.

Prince Mohammed bin Salman is widely accused of ordering the killing of Washington Post reporter Khashoggi, an outspoken critic of the Saudi regime. A Saudi-led investigation exonerated the prince’s role, however the CIA report released over the last week places the blame fairly squarely on his shoulders — while others in the Saudi royal family are reportedly plotting to replace the prince as the next in line to the throne.

Son himself condemned the killing as an “act against humanity” but, in a recent analyst presentation, he added that SoftBank has a “responsibility” to Saudi Arabia to deploy the capital and continue the Vision Fund.

The PIF’s role in Vision Fund — it is the largest single investor — has threatened to taint its efforts, with voices in Silicon Valley suggesting that many founders would prefer to take money from less-tainted sources. However, SoftBank has announced a number of deals in recent weeks — including a $375 million investment in robotic food-prep startup Zume and $1.1 billion deal with glass maker View — which contradicts that. Son himself said he hadn’t heard of any cases of startups refusing an investment from the Vision Fund, but he did admit that there “may be some impact” in the future.

Those investments haven’t stopped Coupang from taking an investment from the Vision Fund, and announcing it publicly, too.

“The Vision Fund is a visionary fund [and] we’re proud to be selected to work in partnership with it,” Coupang CEO Bom Kim told TechCrunch in an interview.

Kim said he doesn’t expect a backlash from the investment, claiming that the tension around Khashoggi’s death “doesn’t represent us and doesn’t represent these companies.”

Taking a vast amount of money from a fund whose mainer backer is a country that (reportedly) murdered a journalist who dared criticize the regime isn’t a good look. But ultimately, it remains to be seen how that will shake out. As the world’s waits on a fuller investigation from the CIA and responses from the Saudi royal family and SoftBank’s Son, the incident certainly does have the potential to weigh on Coupang’s positive news.

Coupang CEO Bom Kim started the company in 2010, now it is valued at $10 billion. [Image via Coupang]

Operating relatively under the global radar, Coupang has become Korea’s largest e-commerce player and it is actively looking to expand into other areas.

Founded in 2010, Kim claimed the company is “approaching” $5 billion in revenue for 2018 with 70 percent annual growth. One in every two adults in Korea have the Coupang app on their phone, the company claims. The company operates only in Korea, but it does have engineering outposts in Beijing, LA, Seattle, Shanghai, Silicon Valley and Seoul.

That impressive revenue number has increased 14x since 2014 which Kim accounts to a moment of clarity which saw the company’s focused redirected.

“We had plans to go public and had gotten pretty far along in the process but we realized that wouldn’t fulfill of our vision,” Kim explained. “Instead, we saw an opportunity to make a long-term series of investments that would mean multi-year investment in tech platforms and infrastructure.”

That meant developing its own network of trucks and drivers, integrating technology at every level and making other changes to build the infrastructure and capacity to deliver items quickly to customers across Korea.

That’s helped Coupang roll out services like same-day delivery, overnight delivery and more. Coupang also has its own RocketPay payment service.

Kim explained that, for example, if a parent realized the night before school that their child needed a new rain jacket, they could receive it via Coupang before 7 am the next day if they ordered it before midnight. The overnight delivery service also includes fresh produce and “millions” of other items, he said. For that to happen, Coupang developed a cold chain logistics network in just one month.

Coupang said “millions” of customers use its service at least 50 times a year, i.e. on a weekly basis. Yes, it is a vague number and we don’t know what proportion of the overall customer base that represents, but it is an impressive snapshot nonetheless.

Kim revealed Coupang has “a lot of different plans” to spend this capital, although he declined to go into specific detail.

He didn’t rule out adjacent services like media — Amazon is, of course, a major name in video and music streaming — and he revealed that Coupang “intends to have a broad reach in more markets than just Korea” although, again, there’s no information on what countries and when.

The plan to go public is also likely to be revived, with the U.S. a more likely destination than a domestic IPO, although Kim said that there is “no specific timetable” for when that might happen.