-Discover promising startups with accounting expertise.. Read growth potential with numbers
-One-stop support from initial startup investment, accounting, taxation, and childcare through a partner system
-Building our own ‘system’ to prevent potential risks from the seed stage
– Focus on fitness, wellness, and bio, and actively expand cooperation with external AC/VC
Startups that are busy trying to survive are not likely to care about financial management. They focus on immediate tasks such as market verification, product development, and customer acquisition, and financial statement management is pushed to the back burner. However, defects that are overlooked in the early stages can hinder the growth of a company. Due to financial instability, corporate value is reduced, and it can also lead to fatal results such as failure to receive government support projects or failure to receive follow-up investments.
Accelerator (AC) 'Cluster Ventures' is helping companies grow steadily by reducing these initial risks. With a partner structure that combines accounting, taxation, incubation, and investment, it not only directly invests in promising startups, but also provides accounting and taxation education to ACs/VCs. Based on its incubation experience, it published <Insight Map>, a practical guidebook for startups and venture investors, in March.
“ We will solve the ‘information asymmetry’ experienced by both investors and entrepreneurs”
Cluster Ventures’ internal members are comprised of experts such as accountants, tax accountants, and lawyers. CEO Jinwon Son, a current certified public accountant, has dealt with various startups and investors as clients and has come to feel the information asymmetry between the two parties. “There are many clients interested in venture investment, but it is difficult to easily approach unlisted companies because their information is not disclosed. Since the information asymmetry is too great for individuals to invest alone, there is a lot of demand for trustworthy investment destinations.”
Information asymmetry also exists from the perspective of the founder. Especially in the seed stage, since they focus only on business items, they often miss the financial aspect. CEO Son explains, “Initial startups often have no sales but only expenses. If these expenses are treated as general expenses, taxes will be reduced, which may seem helpful in the short term, but in the future, it will lead to capital erosion (a situation where the company’s net assets are less than the capital at the time of establishment).” If capital erosion occurs, it can hinder the ability to attract funds such as follow-up investments and government-supported projects.
If you manage your financial statements thoroughly from the beginning of your business, you can sufficiently prevent risks. CEO Jinwon Son explained the reason for jumping into venture investment, saying, “If we use our accounting and tax expertise to manage the accounting of entrepreneurs from the initial investment stage, I think the information asymmetry between investors and entrepreneurs can be largely eliminated.” After exploring opportunities by first forming and operating a private investment fund, CEO Son established Cluster Ventures in 2017, and acquired an accelerator license in 2022 to establish full-fledged investment and incubation functions.
'One-stop' support from accounting to childcare, and development of own SaaS
Cluster Ventures is a subsidiary of 'Cluster Partners'. ▲ 'Yein Accounting Firm' that performs accounting audits and financial due diligence, ▲ 'Jiin Tax' that handles startup tax and bookkeeping, ▲ 'Cluster Edu' that provides accounting and tax education to startup founders and AC/VCs as a lifelong education support organization collaborates as partners. Through this partner system, startups directly invested by Cluster Ventures can receive continuous management from investment to accounting, taxation, and childcare.
As it is composed of professional staff who are well-versed in the characteristics of startups, investors and founders who receive accounting/tax support from organizations under Cluster Partners can obtain high efficiency at a reasonable cost. When conducting financial due diligence, which is a significant cost burden for investors, it can be conducted at a lower unit price than the industry average by including only the scope necessary for early-stage startups. The financial statements of startups are also managed according to the characteristics of the business items. “If development-related expenses are treated as assets, the same expenses are not all treated as expenses, but are reflected as assets, so the corporate value increases significantly,” explained CEO Son.
For early-stage startups without an internal accounting team, we have also developed and are providing a ‘Cluster Report’ service that can replace the role of the CFO (Chief Financial Officer). You can manage everything from accounting, tax, and financial data to KPI and IR slides on a single dashboard screen.
'Cluster Report' is provided free of charge not only to the portfolio companies of Cluster Ventures but also to all clients of Cluster Partners and portfolio companies of AC/VC partners. CEO Son explained, "We are thinking of using our specialized childcare capabilities to introduce this system to companies invested by AC/VCs that are working with us."
Financial risk management system that fills the ' blind spot'
CEO Son explained cases such as transactions between special related parties (blood relatives, relatives, etc. who have influence over the company), withdrawal of loans, and hiding of debt, and emphasized that the core cause of financial risk in early startups is “the structure itself that neglects the founders.” Since only companies above a certain size are subject to mandatory audits, early startups are not included in the audits, and there is no real monitoring system.
Therefore, Cluster Ventures is introducing its own system to check and manage the financial risks of early-stage startups in advance. For example, if a transaction exceeds a certain amount, it filters out whether there are any special related parties in the transaction partner in advance.
We are also building a system that can increase the transparency of accounting through a three-party contract between investors, founders, and Cluster Partners. CEO Son explained, “Generally, it is prohibited to disclose information learned during the settlement to the outside, but we are slightly easing confidentiality by signing a contract of understanding between the three parties.” Thanks to this relaxed contractual condition, the accounting/tax law firm under Cluster Partners can immediately report to investors without the company’s consent when it discovers fraudulent circumstances. Investors can identify fraudulent circumstances in advance and prevent greater risks.
Determining a company's growth potential and 'reliability' with financial data
Cluster Ventures uses quantitative and qualitative criteria to review companies to invest in based on its expertise in the financial sector, and discovers early-stage companies with high growth potential regardless of the industry. Quantitatively, it determines whether a company is on a general growth curve or, if it is on a downward trend, whether it has the potential to get back on track with the investment firm’s support. “We comprehensively look at factors such as which items of the company’s past expenditures were treated as deficits, whether it is in a state of capital erosion, and how many customers it has secured,” explained CEO Son.
The qualitative standard is 'trustworthiness'. It refers not only to the personality aspect, but also to the founder's behavior that can be read from the financial statements. For example, if the representative withdrew 600 million won in loans without consulting the investor, that '600 million won' is the accumulated number of times the founder withdrew 10 million won and 20 million won. From the perspective of the investor who finds out later, it is difficult to trust whether the founder will use the investment money for the intended purpose or share the usage details transparently. CEO Son explained, "Even if the team or personality is good, if you look at how the financial management has been done, it can be different." He added, "We focus on whether the representative has loans, special related party transactions, or debts."
Focused investment in fitness and bio, more than doubled growth
Cluster Ventures plans to focus on investing in the fitness, wellness, and bio sectors in the second half of this year and next year. The background is the expertise of CEO Son, who has a career as an athlete and a degree from a physical education college. Cluster Ventures’ potential LPs (fund investors) and clients are also highly interested in the fitness, wellness, and medical markets.
In the long term, we plan to expand our investment to other diverse fields. In industries that require domain knowledge or technical skills, such as bio and deep tech, we are securing expertise by cooperating with other AC/VCs that have expertise in the relevant fields. CEO Son explained, “We are trying to form a collaborative network by discovering investment destinations with various VC/ACs and also forming a joint investment pipeline.”
Major portfolio companies invested by Cluster Ventures include Keming Company, which operates a smart fitness platform, bioinformatics company Omics Biotech, SaaS company Codeway, and franchise business Laonco. They are growing by more than 2-3 times. Keming Company’s franchise sales increased by more than 3 times in just 6 months after investment, and Omics Biotech’s technology value increased by more than 200% compared to the time of investment.
CEO Son Jin-won emphasized that “founders and investors should be ‘partners’.” This is because both parties are looking in the same direction of ‘startup growth.’ He advised founders to “move in a direction that is helpful to each other rather than pursuing only their own interests,” and “recognize that investors are partners who help you succeed and grow, and think about a structure that allows you to exit (recover your investment) and operate your company.”
Cluster Ventures envisions a future where information asymmetry between founders and investors disappears and everyone is on the same boat and moving in the same direction. CEO Son expressed his ambition by saying, “We will act as the ‘maintenance engineer’ of that boat.” Today, Cluster Ventures is still helping Korean startups prepare to go out into the open sea by finding hidden flaws in startups and repairing them.
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