Demand for overseas headquarters transfer (flip) began to grow significantly starting from the end of 2023. Last year, it was particularly noticeable.
Ahn Hee-cheol, the representative lawyer of the law firm DL & Company, which has supported the flips of Korean startups for the past decade, noted, "This atmosphere is mainly appearing among early-stage startups with strong technological capabilities."
Recently, with artificial intelligence (AI) emerging as the top keyword in the startup sector, the number of corporations considering a flip from the early stages to grow in global markets, including the U.S., has significantly increased.
A flip refers to a change in governance structure where a corporation operating domestically transfers to overseas, making the overseas entity the parent company and retaining the existing Korean corporation as a subsidiary.
There is a noticeable trend of establishing a parent company overseas from the corporate formation stage, especially among serial entrepreneurs.
According to a tally by venture investment information company The VC on the 20th, the number of startups headquartered overseas, including in the U.S., rose to 186 last year, compared to just 32 a decade ago in 2014, showing nearly a sixfold increase.
The main reason is to relocate the forward base to areas with larger markets to enhance corporate value and attract larger investments. This follows in the footsteps of successful predecessors like SendBird (AI chatbot) and Sweet Technologies (business collaboration tools), as well as Beauty Box and Melixir (K-beauty), which succeeded early on with flips.
The reason why AI SaaS company A jumped into its third startup in Silicon Valley, U.S., despite having no prior connections there, is also due to this.
Since the purpose is to create a connection with the U.S. capital market, the corporations must ideally have the potential to enter the U.S. market or be making efforts to attract local investment.
The industry largely agrees that moving to a larger market helps in attracting talent. Recently, early-stage AI startup B, which flipped to the U.S., stated, "Not only is there an established related infrastructure, but with many developers from big tech companies entering the market, we can employ quality personnel who can design services in much more flexible roles compared to Korea."
The freeze in the domestic investment market is believed to have influenced startups turning their eyes overseas. According to the Ministry of SMEs and Startups, the scale of the domestic venture investment market, which was close to 16 trillion won during the peak of COVID-19 in 2021, is now down to 11.9457 trillion won in 2024.
Accordingly, startup support organizations are establishing offices in Silicon Valley to assist our startups in settling abroad. The Asan Nanum Foundation, a leading startup nurturing institution in Korea, plans to establish its first overseas base named "Maru SF" in the second half of this year. It will support startups in the early stages of entering the U.S. with short-term housing for 1 to 2 months and provide various networking programs. This is aimed at helping them explore the local market to quickly adapt to the new environment and effectively expand their business.
Startup Alliance is also considering establishing an office in Silicon Valley. Earlier this year, the Ministry of SMEs and Startups announced plans to develop a "K-Startup Silicon Valley Town" and expressed aspirations to act as a public-private global startup and venture hub.
Experts point out that while having a governance structure that allows for activity in the U.S. capital market through a flip does not guarantee success, caution is necessary. They unanimously agree that while the U.S. market is much larger, it is also a place where global talent and capital congregate, making competition fierce.
There are also calls for necessary policy guidelines. Kim Sung-hoon, the representative lawyer of Mission Law Firm, noted, "The government doesn't need to support or impose restrictions on flips, but since most investment firms are managing government funds, it's necessary to establish guidelines on what criteria they will agree to flip decisions and how to conduct post-management."