Invest KOREA

Eunjae Lee didn’t know “A Werewolf Boy” would have its world premiere at the 2012 Toronto International Film Festival. He didn’t know the movie would be screened at the Busan International Film Festival and he definitely didn’t know it would become one of Korea’s most successful melodramatic movies of all time.

What he did know before investing in the Korean fantasy-romance flick was that it was written and would be directed by Jo Sung-hee, and that it would star A-list actors Song Joong-ki and Park Bo-young. Not that any of that would have guaranteed profits.

“[There is] no guarantee inherently for movie projects, but we can sense, we can feel, through the due diligence process,” said Lee, President of East Gate Partners, LLC, about whether a project may succeed.

It is through this sort of intuition and gauging of potential that East Gate Partners, a venture capital that started business three years ago, has invested in about 50 movie projects and 12 gaming companies with the East Gate Media Contents & Technology Fund L.P.

“We see high growth potential in Korea’s media and contents industry due to Asia’s growth,” said Lee. “From dramas and K-pop to games and movies, we see much more investment opportunities in games and the movie industry especially.”

While the gaming industry has already experienced globalization, the movie industry still has a ways to go, Lee added. That is why East Gate Partners, an affiliate of the Silicon Valley-based East Gate Capital Management Company, is looking to invest in movie-exporting companies. The company is also considering investing in new media, contents and key technologies in the mobile Internet sector and plans to expand into the animation industry.

Limited partners in the East Gate Media Contents & Technology Fund include the Korean government, Korean municipal funds, foreign investors, GigaMedia Limited, Lotte Entertainment, CJ Entertainment and Next Entertainment World (NEW). The fund has invested 42.7 billion won ($39.8 million) in gaming companies and movie projects, with the fund’s target IRR in four years being more than 15 percent. Flagship exits for two gaming companies have yielded 1.5x returns, with CJ E&M acquiring both. When it comes to notable movie projects, the box office hit “Unbowed” yielded 5x returns this year.

With movie projects being inherently difficult to predict, East Gate Partners’ strategy is to invest smaller amounts of money into more projects. For its portfolio companies, Lee and his three partners look for enterprises with a management team that objectively understands its business position and timing and a team that champions profit-sharing. The preference is for recurring revenue business models with a niche-to-mass-market expansion scheme, and the forging of partnerships between venture companies and larger companies.

Currently overseeing 10 portfolio companies, East Gate Partners has a bird’s eye view of what each lacks, and how one can help another fill a need.

“We want maximum synergy between our portfolio companies,” said Lee. “Value addition is an endless job for us. We act as a middle man for information flow between our portfolio companies.”

This year, East Gate Partners plans to raise a second fund, worth 50 billion won, for the general media & contents industry. They are interested in investing in companies that specialize in content creation and management, digital distribution and delivery, talent management and training and new media targeting Korean, Japanese, Chinese and Southeast Asian audiences.

‘We would like to be a best-performing fund managing company in maximum distribution to LPs rather than having the largest fund size,” said Lee. “We will do that by being a best gateway to the Korean market for global institutional investors.”