What tech startups and K-pop have in common

Today, we’re swapping software for bright lights, AI infrastructure for boy bands, and Silicon Valley for Seoul.

We’re talking about K-pop dealmaking. It’s an especially good time to take a closer look at Korea-based entertainment powerhouse Hybe: Last week, Hybe America CEO Scooter Braun officially stepped back from his long career as a manager for superstars like Justin Bieber, Ariana Grande, and Demi Lovato. He'll now focus exclusively on Hybe (the news also helped send Braun’s years-long rift with Taylor Swift back into headlines).

Hybe's story may not be a venture capital story, but it’s an M&A story of extensive proportions—and one with some interesting parallels to the VC industry.

The first thing to understand is that Hybe is a matryoshka doll of a company, composed of an ever-growing sequence of deals on top of deals. And at the very center is mega-successful boy band BTS.

If you’re not a K-pop fan, here’s a quick summary of the band’s stature: “BTS will be like the Rolling Stones as they get older,” said Yale professor Grace Kao. “People are always going to go to their shows, even after the point where they’re not charting anymore. Think about Bruce Springsteen—he doesn’t chart anymore but the shows are sold-out.”

To put it in VC business terms, think about a multi-unicorn startup founder who gets a biography written about them—and then you’re getting close to BTS’s importance in the entertainment industry. And just as a wildly successful startup can turn the fledgling VC firm that backed it into a venture industry giant, BTS forever changed the fate of an upstart music company called Big Hit.

“BTS came from a small company called Big Hit and because BTS did so well, their manager, Bang Si-hyuk, was able to basically build this giant company called Hybe,” said Kao.

But because BTS’ success is anomalous, Hybe also needed a non-BTS plan—and that plan was M&A.

“Just a few years ago, 80% of Hybe's revenue came from BTS. Since 2019, Hybe has acquired Pledis; Belift Lab; and Source Music,” Soojin Lim, Daishin Securities researcher, told Fortune via email. “All of these groups have risen to become top K-pop artists in Korea, allowing Hybe to not rely solely on BTS.”

But it's possible Hybe’s most notable acquisition is the one that brings us back to Braun—in 2021, Hybe bought Braun’s Ithaca Holdings for slightly more than $1 billion, marking a move into the U.S.

“This was an investment to expand the success of K-pop in Asia to the United States,” said Lim via email. “As the U.S. is the largest music market in the world, its future value is high. Although profitability is not yet high, synergy effects are expected rather than just an increase in sales.”

“Braun's involvement was anticipated to facilitate the globalization of K-Pop by leveraging his connections and experience to promote Hybe's artists in the Western market,” Lim added.

Braun seemingly represents Hybe’s future, at a time when the company decidedly needs to be thinking about one. As Braun shifts to spending all his time with Hybe, he has the opportunity to be a bit of a hero—because for Hybe right now, life is not dynamite. (What is, however, is this mesmerizing 2020 BTS performance of their hit “Dynamite.”)

The company’s “going through a tougher time than ever,” Lim said. There are industry-wide problems. For one, Hybe has seen its stock decline by about 17% year-to-date, as K-pop sales have struggled. These sales slumps have also rankled competitors like YG Entertainment, SM Entertainment, and JYP Entertainment.

But there are also problems specific to Hybe: The company is embroiled in a controversy with its buzziest subsidiary, Ador, which manages surging girl band NewJeans, which Lim says has substantially affected public opinion of Hybe. (It’s a pretty spicy story—allegations of deception and plagiarism are at its center.)

Nevertheless, if Hybe can push forward, K-pop will remain a growing business into the foreseeable future: “In 2023, we estimate roughly $5B direct revenue for K-pop companies,” Bernstein analyst Bokyung Suh said via email, adding that he expects the market to “overall double up in 2030.”

Of course, as is the case with startups, you need the right people in place in order to push forward. And while Braun is set up to build a legacy at and for Hybe, there are currently some key men temporarily removed from Hybe’s orbit: BTS is on hiatus until 2025, as its seven members—RM, Jin, Suga, J-Hope, Jimin, V, and Jungkook—have been working on completing their mandatory military service in South Korea.

In that sense, Silicon Valley and K-pop are very much the same—when a key man (or boy band) is absent, much is uncertain.

See you Monday,

Allie Garfinkle
Twitter: @agarfinks
Email: alexandra.garfinkle@fortune.com
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Joe Abrams curated the deals section of today's newsletter.

This story was originally featured on Fortune.com