This article about G3 Partners Client, Yello Mobile, originally appeared on the Wall Street Journal.
One of South Korea’s hottest mobile startups isn’t so much one company as it is 71 companies.
Yello Mobile, launched two years ago, has grown at a brisk rate by gobbling up dozens of other startups in mobile commerce, mobile marketing and local services.
To fuel those deals, Yello Mobile has been busy raising money of its own. Late last year, the Seoul-based company wrapped up its third round of funding, giving it a valuation of about $1 billion.
The $100 million deal was led by Silicon Valley venture fund Formation 8, which backed virtual-reality company Oculus VR before its sale to Facebook Inc. last year for $2 billion.
For Yello Mobile, that cycle of investment, fundraising and more investment isn’t likely to end soon. Founder Lee Sang-hyuk says the company is only going to keep swallowing up more companies as it branches out from its home market and enters the rest of Asia.
This week, Mr. Lee, a 43-year-old former executive at South Korean Internet company Daum Communications Corp., is back out on the road again in search of more funding, as the company begins preparing for a public listing next year, possibly on the Nasdaq Stock Exchange.
Driving Mr. Lee’s urgency is a belief that mobile commerce and marketing are exploding too quickly for any one company to be dominant — so he’s trying to bring together all the small companies that are making a difference, he said in an interview.
Expanding at such a pace is risky, and makes Yello Mobile potentially vulnerable to a swift downturn in the economy at a time when South Korean officials are warning of exactly that. In the fourth quarter of last year, South Korea’s economy slowed to its most sluggish pace in more than two years, despite officials trying to juice the economy through interest rate cuts and higher government spending.
Mr. Lee says that his acquisition strategy isn’t haphazard. While the company is eager to strike deals, Mr. Lee says he has no interest in mobile messaging or mobile gaming, two areas that he believes are already saturated.
Instead, he wants to quickly build up scale in advertising and commerce, two businesses that he says are ripe to be upended by the swift rise of mobile devices — regardless of the broader economic environment.
One of Yello Mobile’s companies, called CooCha, takes advantage of South Koreans’ interest in mobile commerce by aggregating the best deals of the day from the country’s various mobile marketplaces. Another, RecoBell, uses big data to personalize recommendations for mobile consumers.
Yello Mobile is Mr. Lee’s second venture. He started his first, a retail loyalty service called MyOne Card Corp., in 1998, before selling it to Daum for about $8 million in 2011.
Mr. Lee says he hoped to build a retail mobile app for Korea at Daum, but instead left the company after a year and a half, concluding that Daum, an early Web pioneer in South Korea, “wasn’t ready” for consumers’ switch to smartphones. Daum last year merged with Kakao Corp., the operator of South Korea’s dominant mobile messenger.
Days after Mr. Lee left Daum in early 2013, he started Yello Mobile, approaching several small local mobile commerce companies about joining forces. The companies were active in the areas Mr. Lee now sees as his core businesses: hotel and restaurant recommendations, local services and coupons. (The Yello Mobile name is a play on “yellow pages,” the commercial pages in traditional phonebooks.)
Since forming that initial alliance, Yello Mobile has been snapping up companies voraciously, mostly through equity swaps that give Yello Mobile a majority stake in the companies, which are typically valued under $10 million when Yello Mobile acquires them.
“They keep joining every day,” says Mr. Lee, during an interview in his frenetic headquarters at the foot of one of Seoul’s trendiest streets, in the city’s Gangnam neighborhood.
Mr. Lee says the pace of dealmaking is so fast that he’s delegated the work of meeting companies and approving deals to his top lieutenants. Asked when the pace of acquisitions will slow, Mr. Lee refers to London-based advertising and public relations giant WPP PLC, which lists about 250 companies under its auspices on its website. IAC/InterActiveCorp, another reference point, has more than 150 brands under its umbrella.
Mr. Lee says that his various companies’ apps have racked up a cumulative 70 million downloads, with 22 million active monthly users, a key metric in the startup world. The company says it generated $350 million in sales last year, and was marginally profitable.
While the various companies share a parent company and certain core functions, including human resources, legal and financial teams, Mr. Lee says that all of his companies compete as separate entities.
“It’s purely market-driven cooperation between the various companies,” he says.
Not every company succeeds. Mr. Lee agrees on specific targets with each of the companies, and ones that fail can be shuttered or merged with other Yello Mobile companies — two scenarios that have already played out.
Mr. Lee has started to turn his focus outwards, snapping up two companies in Indonesia last year. He says the outward push will accelerate this year, with Vietnam and Thailand in the cross hairs. Mr. Lee’s goal is to be the biggest platform for mobile commerce in Asia — with the notable exception of China’s relatively closed market.
“Some of the platforms we’ve built in Korea are nonexistent elsewhere,” he said.