AVCJ Awards 2021: Deal of the Year – Mid Cap: Danggeun Market

Danggeun Market’s Series A and B rounds in 2016 and 2018 were provided by VCs already familiar with an overlooked Korean start-up opportunity set; Strong Ventures, Capstone Partners, Kakao Ventures, and SoftBank Ventures Asia (SBVA). By 2019, when fellow local player Altos Ventures co-led a USD 33.6m Series C for the flea market app with US-based Goodwater Capital, the secret was out.

Now, it appears the floodgates have opened in earnest. In the past 18 months, unicorn IPOs and trade sales with global strategics have given Korea’s traditionally insular tech scene a global, heavyweight profile for the first time. Few investments demonstrated this evolution as dramatically as Danggeun’s Series D in April last year.

Altos, Goodwater, Strong, Capstone, Kakao Ventures, and SBVA returned for the USD 162m round, with incoming investor DST Global taking the lead. They were joined by Aspex Management and Reverent Partners at a valuation of USD 2.7bn, a 15x increase on 2019. It followed a growth spurt that saw the number of monthly active users (MAUs) jump from 500,000 to 15m in the space of three years.

“What’s interesting about this Series D is that more people are understanding that it’s more about community than commerce transactions, and that this idea could be something very interesting,” said Moon-Suk Oh, a partner at Altos. “We think of it as a hyperlocal version of Naver, the Google of Korea.”

Local lynchpin

Being hyperlocal is the key. P2P used goods sales were a helpful way to engage users and initially build up audiences in tightly defined geographies. Once that is achieved, the most intuitive course of action would be to focus on straight advertising – but that’s not the plan. The voluntarily social, neighbourhood-level intimacy Danggeun mimics online creates much more interesting possibilities.

To date, practical business growth has centred around the commerce function and establishing Danggeun as a kind of hyperlocal Yellow Pages. Small merchants are opening their own storefronts on the platform to target their immediate communities, and a payments app is currently being rolled out to further monetize their participation.

But in the years to come, the fact that Danggeun is facilitating communication and data gathering at a sub-suburb level is hoped to reveal new business lines in areas such as hyperlocal social media and classifieds for group activities. This is addictive behaviour territory; Dangguen’s MAUs already spend 2.5 hours a day on services of this kind.

Already, micro-communities are forming on Danggeun around meetups for breakfast, coffee, and jogging. To some extent, this is believed to be a reaction to the isolation that has come with pandemic-altered lifestyles. To keep things close-knit and neighbourly, GPS is used to verify the local residency of users, who are peer-reviewed via an eBay-style feedback system.

“We’ve invested in some start-ups that have grown to meaningful size, but we’re seeing some of the best talent choosing Danggeun over others. Engineers and product people are very excited about the vision, the growth, the amount of work that can be done, and the opportunity that represents in terms of dealing with a new type of service and traffic,” Oh said.

“That is really the strongest validation that we have. Whether the valuation is right or wrong, or whether the company can grow 5x from here, no one knows. But they’ve been hiring the best talent in Korea for the past 12-24 months.”

The influx of talent has led Danggeun to experiment with going abroad earlier than most Korean start-ups, adopting the name Karrot, an alternate spelling of its literal English translation, in overseas markets.

The first moves were into Japan and the UK; developed economies with massive urbanisation are seen as the best fit for second-hand commerce platforms. Canada is the current priority, with co-founder and CEO Gary Kim having relocated to the country earlier this year.

Danggeun’s dominance back home hints at the potential of these international beachheads. It is now said to have a 93% market share in the domestic second-hand goods space (compared to 77% in April 2021), surpassing Netflix, TikTok, and Instagram in terms of downloads. MAUs have ticked up to 16m since the Series D, and total users amount to some 21m, or 41% of Korea’s population.

Naver gazing

Scaling a P2P used goods business to this extent comes with significant challenges related to the taxation of big-ticket items and dispute resolution between buyers and sellers. To some extent, the hyperlocal focus is seen as helping minimise these issues; the idea being that neighbours are less likely to post misleading item descriptions to each other.

“Not many apps have achieved that kind of traffic in Korea. It requires substantial investment, and given Danggeun’s foothold in the hyperlocal area, we’re not seeing that many new entrants,” Oh said. “We’re seeing founders attempting different categories like restaurants, real estate, or connecting for classes. But it’s hard to find one platform that does everything.”

The most comparable player is Naver, which set up Korea’s first online flea market, Joonggonara, in 2003, and it’s worth noting that Danggeun’s Kim was a product manager at the search engine as the platform expanded. Joonggonara was acquired last year by a consortium including Lotte Shopping and Opus Private Equity.

Meanwhile, Naver has launched a hyperlocal community bulletin board called Neighbor within its Naver Café app as well as a sneaker reselling platform called Kream, which has received backing from Altos and SoftBank Ventures.

Korea’s largest retailer, Shinsegae, has made similar moves in recent months, sometimes via its VC unit Signite Partners. The most recent of these include a partnership with E-mart to sell used luxury goods and an investment in community-centric marketplace Bungaejangter.

The point being, while all eyes have been trained on signs of an IPO since Danggeun’s Series D, hyperlocal and second-hand have become hot themes in the strategic M&A market. This is an emerging opportunity set in Korea that Altos knows well, having recently realized separate exits via trade sales to US-based Match Group and Germany’s Delivery Hero.

“There’s going to be more M&A, and it’s not just going to be these global players,” Oh said, emphasizing that Danggeun was still in the early stages of going global and not yet in exit mode. “I think Korean companies are going to be more proactive in terms of acquisitions.”

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• Topics
• North Asia
• Expansion
• Technology
• Consumer
• South Korea
• AVCJ Awards
• Goodwater Capital
• Altos Ventures
• SoftBank Ventures Asia
• Kakao
• Growth capital
• TMT