Discover Korea’s Startup Investment Trends: EXIT

 

This is the third post in our 4 series of investment trends. Born2Global discusses about venture capital investment, angel investment, exit, and crowdfunding. 

 

IPO

 

Outside Korea, initial public offering (IPO) is the most powerful means for investors and startup founders to recoup some of their investments and reinvest them for the sake of the companies’ future growth. In Korea, however, it is still rare for venture-backed companies to go public.

 

According to the Korea Venture Business Association (KOVA) and KVCA, the number of venture-backed companies listed on KOSDAQ (excluding special purpose acquisition companies, or SPACs, etc.) stands at only 27 as of the end of November 2016. Overall, both KOSPI and KOSDAQ observed a decrease in the number of IPOs, amid unfavorable market conditions. However, this trend could also be seen as just a part of a vicious cycle: delayed listing → insufficient returns on investment → reduced investment → sluggish growth → decrease in attempts to list.

 

 

 

 

Currently in Korea, IPOs are used by VC firms and investors as a means of earning returns on their investments. From the perspective of startup founders, IPOs are not statistically significant as a means of recovering their own funds or attracting investment. Over the last 20 years, the proportion of venture-backed companies completing IPOs has never exceeded 10 percent. In fact, it has been decreasing since 2010. Since falling to below 2 percent in 2008, the proportion currently hovers around the 1 percent range.

 

Investment returns dependent on over-the-counter sales

 

Korean VC firms and angel investors rely mainly on over-the-counter (OTC) trading to receive returns on their investments. As a result, they can never be sure if they will be able to sell the desired amount of shares at the desired time, with most finding it difficult to receive the prices they want for their shares as well. The Korea Information Society Development Institute examined the ratios of the different payback methods for VC firms in Korea for the past five years and found that OTC sales (and redemption) were overwhelmingly high, while M&As accounted for less than 5 percent. Standing at 4.9 percent (based on the sum) in 2010, the percentage of repayments through M&As fell to 1.5 percent in 2011, 1.0 percent in 2012, and further to 0.5 percent in 2014. IPOs also accounted for less than 20 percent every year. However, the percentage of repayments through OTC sales and redemption stood at 56.2 percent in 2010, rising to 56.8 percent in 2014. Although the percentage of OTC sales and redemption dropped slightly in 2015, it still accounted for over 40 percent, while M&As made up only 1.3 percent.

 

Korean VC firms prefer to recover their investments through OTC sales and redemption, because IPOs and M&As usually entail significant difficulties and take much longer. According to KOVA, IPOs and M&As for startups in advanced countries, such as the United States, European nations, and Japan, are often decided within five to seven years from the time the startups launched. However, IPOs for startups in Korea take an average of 13.7 years to complete, which is more than double the length of time it takes for investors in the United States and other advanced nations to recover their investments in startups.

 

 

 

 

 

 

 

Discover Korea’s Startup Investment Trends: EXIT

 

This is the third post in our 4 series of investment trends. Born2Global discusses about venture capital investment, angel investment, exit, and crowdfunding. 

 

IPO

 

Outside Korea, initial public offering (IPO) is the most powerful means for investors and startup founders to recoup some of their investments and reinvest them for the sake of the companies’ future growth. In Korea, however, it is still rare for venture-backed companies to go public.

 

According to the Korea Venture Business Association (KOVA) and KVCA, the number of venture-backed companies listed on KOSDAQ (excluding special purpose acquisition companies, or SPACs, etc.) stands at only 27 as of the end of November 2016. Overall, both KOSPI and KOSDAQ observed a decrease in the number of IPOs, amid unfavorable market conditions. However, this trend could also be seen as just a part of a vicious cycle: delayed listing → insufficient returns on investment → reduced investment → sluggish growth → decrease in attempts to list.

 

 

 

 

Currently in Korea, IPOs are used by VC firms and investors as a means of earning returns on their investments. From the perspective of startup founders, IPOs are not statistically significant as a means of recovering their own funds or attracting investment. Over the last 20 years, the proportion of venture-backed companies completing IPOs has never exceeded 10 percent. In fact, it has been decreasing since 2010. Since falling to below 2 percent in 2008, the proportion currently hovers around the 1 percent range.

 

Investment returns dependent on over-the-counter sales

 

Korean VC firms and angel investors rely mainly on over-the-counter (OTC) trading to receive returns on their investments. As a result, they can never be sure if they will be able to sell the desired amount of shares at the desired time, with most finding it difficult to receive the prices they want for their shares as well. The Korea Information Society Development Institute examined the ratios of the different payback methods for VC firms in Korea for the past five years and found that OTC sales (and redemption) were overwhelmingly high, while M&As accounted for less than 5 percent. Standing at 4.9 percent (based on the sum) in 2010, the percentage of repayments through M&As fell to 1.5 percent in 2011, 1.0 percent in 2012, and further to 0.5 percent in 2014. IPOs also accounted for less than 20 percent every year. However, the percentage of repayments through OTC sales and redemption stood at 56.2 percent in 2010, rising to 56.8 percent in 2014. Although the percentage of OTC sales and redemption dropped slightly in 2015, it still accounted for over 40 percent, while M&As made up only 1.3 percent.

 

Korean VC firms prefer to recover their investments through OTC sales and redemption, because IPOs and M&As usually entail significant difficulties and take much longer. According to KOVA, IPOs and M&As for startups in advanced countries, such as the United States, European nations, and Japan, are often decided within five to seven years from the time the startups launched. However, IPOs for startups in Korea take an average of 13.7 years to complete, which is more than double the length of time it takes for investors in the United States and other advanced nations to recover their investments in startups.

 

 

 

 

 

 

 

Discover Korea’s Startup Investment Trends: EXIT

 

This is the third post in our 4 series of investment trends. Born2Global discusses about venture capital investment, angel investment, exit, and crowdfunding. 

 

IPO

 

Outside Korea, initial public offering (IPO) is the most powerful means for investors and startup founders to recoup some of their investments and reinvest them for the sake of the companies’ future growth. In Korea, however, it is still rare for venture-backed companies to go public.

 

According to the Korea Venture Business Association (KOVA) and KVCA, the number of venture-backed companies listed on KOSDAQ (excluding special purpose acquisition companies, or SPACs, etc.) stands at only 27 as of the end of November 2016. Overall, both KOSPI and KOSDAQ observed a decrease in the number of IPOs, amid unfavorable market conditions. However, this trend could also be seen as just a part of a vicious cycle: delayed listing → insufficient returns on investment → reduced investment → sluggish growth → decrease in attempts to list.

 

 

 

 

Currently in Korea, IPOs are used by VC firms and investors as a means of earning returns on their investments. From the perspective of startup founders, IPOs are not statistically significant as a means of recovering their own funds or attracting investment. Over the last 20 years, the proportion of venture-backed companies completing IPOs has never exceeded 10 percent. In fact, it has been decreasing since 2010. Since falling to below 2 percent in 2008, the proportion currently hovers around the 1 percent range.

 

Investment returns dependent on over-the-counter sales

 

Korean VC firms and angel investors rely mainly on over-the-counter (OTC) trading to receive returns on their investments. As a result, they can never be sure if they will be able to sell the desired amount of shares at the desired time, with most finding it difficult to receive the prices they want for their shares as well. The Korea Information Society Development Institute examined the ratios of the different payback methods for VC firms in Korea for the past five years and found that OTC sales (and redemption) were overwhelmingly high, while M&As accounted for less than 5 percent. Standing at 4.9 percent (based on the sum) in 2010, the percentage of repayments through M&As fell to 1.5 percent in 2011, 1.0 percent in 2012, and further to 0.5 percent in 2014. IPOs also accounted for less than 20 percent every year. However, the percentage of repayments through OTC sales and redemption stood at 56.2 percent in 2010, rising to 56.8 percent in 2014. Although the percentage of OTC sales and redemption dropped slightly in 2015, it still accounted for over 40 percent, while M&As made up only 1.3 percent.

 

Korean VC firms prefer to recover their investments through OTC sales and redemption, because IPOs and M&As usually entail significant difficulties and take much longer. According to KOVA, IPOs and M&As for startups in advanced countries, such as the United States, European nations, and Japan, are often decided within five to seven years from the time the startups launched. However, IPOs for startups in Korea take an average of 13.7 years to complete, which is more than double the length of time it takes for investors in the United States and other advanced nations to recover their investments in startups.

 

 

 

 

 

 

 

Newsletter Sign Up

By clicking "submit," you agree to receive emails from Bron2Global and accept our web terms of use and privacy and cookie policy*Terms apply.