How Europe Missed the Mark: Lessons From South Korea

European Straits #70

Dear all,

I recently spent time with Fleur Pellerin to learn more about Korelya Capital, the venture capital firm she’s managing in Paris. Fleur has had an unusual trajectory. A former senior civil servant, she made her name in politics by helping then-presidential candidate François Hollande with tech-related issues and later becoming a cabinet minister. When she left politics in 2016, she raised money from a single LP, the South Korean tech giant Naver Corporation, and set up her own firm to invest in European startups.

One part of our conversation was on how Naver’s interest in investing in Korelya Capital came about. Fleur herself has a connection with South Korea, having been born there before she was adopted by a French family at just six months old. But why exactly is Naver interested in the European startup scene? Fleur shared some insights and then I searched for more—and it helped me realize one reason, among many, why Europe is still so weak in the current Entrepreneurial Age: We don’t have a Naver.

Naver is the South Korean equivalent of Google. It was launched at about the same time, in 1999. It then grew to become the leading search engine on its domestic market of 47 million inhabitants. Then it expanded its international footprint by launching several online businesses in neighboring Asian countries. In particular, Naver owns a significant share of Line, now a public company that operates the leading mobile messaging app on the Japanese market. All in all, Naver has become a continental heavyweight, with offices in Japan, the US, China, Vietnam, Taiwan, and Thailand, and it has diversified into adjacent markets such as payment services, social media, and cloud computing.

Again, my question is quite simple: Why did we Europeans never grow a Naver? Here are a few of the reasons that could explain it:

1/ We grew complacent (or frightened) following the burst of the dotcom bubble. After the Nasdaq rout in 2000, Silicon Valley enjoyed the luxury of being a one-industry area, having no choice but to choose resilience and to continue investing in tech—albeit with a more cautious approach. Meanwhile, other parts of the world, and most notably Europe, had the possibility of going back to business as usual and thus relinquished any interest in the digital economy. That post-bubble period explains much of Silicon Valley's competitive edge over the European ecosystem, as they kept pushing while we switched to other matters. Still, I've been happy to discover that other ecosystems, including South Korea's, didn't make the same mistake and kept on building even after the bubble burst.

2/ We Europeans don't see ourselves as still needing to catch up—and it makes us even more complacent. We think that because we dominated the global economy in the 20th century, we’re bound to keep on doing it in the 21st century. What we don’t realize is that our edge over other areas was due to contingent circumstances such as colonization, mass immigration, and the Marshall Plan. Now, unlike countries like South Korea, we’re way beyond the catching up process, and so our will to build new companies and institutions is no longer supported by a high growth rate. What’s more, because we see ourselves as more developed, many are blind to the obsolete nature of institutions that stand in the way of making the most of the new paradigm. It’s easier to grow a new company such as Naver in a hungry, fast-growing economy where the lifts entrepreneurs up, as opposed to a mature one where stagnation favors incumbents.

3/ We’re more culturally fragmented. Why was the South Korean Naver able to expand to Japan while so many French startups fail to expand to Germany (and vice versa)? , a general partner of a private equity firm mentioned Naver and its dominant positions in Korea and Japan to make the point that Asian internet users preferred Asian products over Western ones. It’s less about national preference (Chinese individuals using Chinese products) or languages (China, Japan, and South Korea have different languages) than it is about profound cultural differences between Asia and the Western world. Indeed there’s something that unifies the Asian digital economy that is lacking in Europe. I think that we Europeans cling to our differences, to the point where it’s difficult to unify Europe politically and economically. And similarly we don’t like the idea of our being unified by any tech company, even (especially?) if it’s a European one.

4/ We’ve submitted to the mighty US, whereas South Korea aims to stand up to mighty China. In a way, we have Hollywood to blame for that. There are huge differences between the US and Europe in terms of values and ways of life (think about guns or health insurance, for instance). But because we’ve all been raised watching Hollywood movies, there’s an artificial proximity: European culture, however different from that of the US, has been shaped so as to welcome American products. The problem is that the exchange stops there. While we’re close enough to the US to be served as consumers by their companies, we’re much too far away to benefit business-wise from their ecosystem.

The consequences, in any case, are daunting. It takes entrepreneurs for the transition to make progress in most industries. But later in the transition, it also takes large tech companies such as Naver, which are a crucial part of any thriving entrepreneurial ecosystem. They’re the ones who enrich the senior executives who then go on to become angel investors with a healthy mindset. And they’re the ones who eventually throw their huge balance sheet behind making inroads in more difficult industries (like Google with self-driving cars).

Naver made its first round of growth on an ‘easy’ market (online search) at a time when the market was there for the taking, and then grew by expanding to other countries and diversifying. Alas we in Europe never grew a Naver, and so we’ve missed a critical early step: no such large tech company is pulling the entire European ecosystem forward.

So back to the initial question: Why is Naver interested in European startups? Quite simply, in their unequal battle against US and Chinese giants, they want other regional champions to emerge and compete with the global players. In other words, they need many other Navers growing from Europe and elsewhere to help them contain formidable rivals such as Google, Tencent, and Facebook.

And so the bets are all new: Is it too late for Europe to grow a Naver, making it even harder to grow the next generation of companies? Or can Europe still make it? 😉

Don’t miss this (still) relevant article I wrote back in 2015: The Digital World Is not a Flat Circle.

Warm regards (from London, UK),

Nicolas