Obstacle to Virtuous Cycle
Investment in venture firms is soaring in Korea these days, thanks to the Park Geun-hye administration’s creative economy drive. Meanwhile, fund recovery is failing to enjoy any trickle-down effect.
According to the Small and Medium Business Administration (SMBA), new venture investment amounted to 1.3845 trillion won (US$1.2774 billion) in 2013 to record a 12.3 percent increase year-on-year, which is also the highest level since 2001. The number of angel investors added up to 4,870 as well, more than double the figure of 2012 at 2,260. Investment by newly-established venture investment associations reached 1.5374 trillion won (US$1.4185 billion), showing a 99 percent increase from the previous year.
However, the number of IPOs in the KOSDAQ market stood at just 37 last year. There were more than 170 in 2001, but they dropped to 64 in 2010, 57 in 2011, and 21 in 2012. The sluggish IPO and M&A has made fund recovery by venture capitalists difficult. “It takes too much time for investment targets to go public in the KOSDAQ market, and thus M&A as a midway point to IPO should be revitalized,” said Korea Capital Market Institute researcher Park Yong-lin, adding, “It is fair to say that fund recovery by venture capitalists is completely closed, with the local M&A market being in the doldrums.”
The government launched the KONEX market in July 2013 to cope with such problems, but it seems that it will take more time to get on track. At present, 45 companies are listed on the KONEX market, 24 more than during the early stage. Seven of them procured approximately 15.58 billion won (US$14.38 million) of funds through paid-in capital increases since September of last year.