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SoftBank-Backed Karrot Becomes $2.7 Billion Korea Unicorn

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·4 min read
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(Bloomberg) -- The startup behind local-marketplace app Karrot has raised $162 million from investors including DST Global, joining a growing list of unicorns in South Korea that are eyeing global expansion as growth at home plateaus in the wake of a pandemic-driven boom.

Danggeun Market Inc.’s Karrot scored funds at a $2.7 billion valuation from new investors including Yuri Milner’s outfit and Aspex Management. Existing investors like Altos Ventures and Goodwater Capital also participated, according to co-founder Gary Kim. The firm is backed by a venture arm of Masayoshi Son’s SoftBank Group Corp. and the new round makes it one of the largest startups in Korea.

Asia’s fourth largest economy has been minting unicorns and self-made billionaires at a faster rate than ever this year, breaking away from the family-controlled conglomerates, or chaebols, that have traditionally led its economy. Like other Korean startups such as Coupang Inc. and Krafton Inc., Karrot is preparing to expand internationally in search of a bigger market.

“Not many of us imagined that BTS could become a world superstar,” Kim said, invoking the Korean pop sensation during an interview at a new office in the upscale Seoul district of Gangnam. “I want to show that Korean startups can also become successful like Facebook and Google. In terms of quality of products, marketing and branding, everything has matured. Soon there will be a Korean consumer app that all people around the world will use.”

Read more: Tech Worker Turns Hobby Into a Startup Nearing Unicorn Status

Kim, 43, said the new funds will bankroll Karrot’s talent acquisition and overseas expansion plans for the next 18 months to two years. The 200-person startup intends to hire 100 new employees this year. Kim said the company is keeping the focus on improving profitability and it may take as long as five years before any potential public listing. Karrot handled hundreds of billions of dollars of sales last year, Kim said without specifying the company’s earnings. Its local-ad sales business is growing, but the company is not yet profitable.

Karrot has grown into an online community of 15 million monthly active users trading second-hand items with their neighbors mostly face to face, within a radius of usually about 6 kilometers. The platform has also expanded to offering part-time jobs, real-estate listings, pet care and laundry services. The company plans to launch a digital payments service in the latter half of this year.

The former Kakao Corp. worker believes Karrot will need at least five years of investment in a foreign market to turn that into a meaningful business. Line Corp.’s parent company Naver Corp. needed 10 years of accumulating data and experience in Japan before that app took off, he said.

Kim started Karrot in 2015 with a Kakao co-worker and a Naver engineer, using cash they got from selling Kakao stock options. Initially targeting only South Korea’s Silicon Valley -- their old stomping grounds around the Pangyo Techno Valley outside Seoul -- the app has retained a highly localized approach even as it expanded throughout the country.

Today, Karrot also offers its service in several areas in the U.K. and is testing it in New Jersey and Manhattan in the U.S., some cities across Canada and Yokohama in Japan. Kim’s team is still searching for a “success formula” to overseas expansion and the app is likely to face sterner competition abroad. Facebook Inc. is testing a similar feature it calls Neighborhoods, while rival Nextdoor Inc. is planning to go public as it continues its own expansion push.

Read more: Facebook Building Neighborhood Feature as Nextdoor Eyes IPO

At home, Karrot’s growth has somewhat stagnated after the app’s use tripled since the start of the pandemic -- going from 4.8 million to 14.2 million users in the year to January 2021 -- but only added another one million users in the period to June. The company plans to broaden the services it offers to connect neighbors in more ways such as local commerce and meet-up features. It wants to grow the app to the size of Kakao Talk, which has a 40-million-user audience from a population of 52 million.

Karrot started testing a quick-delivery service in May in the Songpa and Gwanak areas of Seoul, entering a new e-commerce battleground. Coupang has been testing local-commerce delivery in some parts of the city, while food-delivery leader Woowa Brothers also operates a quick-delivery service. Unlike Coupang and Woowa’s services that source products from their storage centers, Karrot plans to connect local stores, customers and delivery people, all within a 4km to 6km range from each other, reducing costs in the process.

“I think it’ll take another three to five years to become a local super app,” Kim said. “We’d like to build a neighborhood ecosystem that has all activities that a person can do within their neighborhood.”

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