[Inside Chodong] Need to Adjust the Pace of 'Korea Fund of Funds Budget Cuts'

[Asia Economy Reporter Hyungsoo Park] Companies like Golfzon County and Market Kurly are struggling to escape being sidelined in the initial public offering (IPO) market. Market Kurly, which was valued at 4 trillion won during its pre-IPO (pre-listing equity investment) last year, is now being evaluated as "expensive even at 2 trillion won." Expectations for Golfzon County have also faded. Due to growing concerns about inflation and a sluggish stock market, a cold wind is blowing through the IPO market as well. Socar, a promising candidate expected to attract market funds in the second half of this year’s IPO market, failed to generate enthusiasm in demand forecasting targeting institutional investors. Although it entered the stock market at a price 30% lower than the lower end of the public offering price range, its current stock price remains below the offering price. The situation is not much different for other major companies that previously went public.

The domestic IPO market fluctuating between hot and cold is nothing new. If the stock market rebounds, the IPO market could once again experience a frenzy. Individual investors who earned returns through public offering subscriptions can wait and resume investing when the market improves.

However, the problem is that private investment in domestic unlisted companies has stopped while the IPO market has contracted. The IPO market is a major channel through which funds invested in startups can be recovered. The public offering price set during an IPO is a barometer that determines the investment returns of venture capital (VC). Investors who participated in Market Kurly’s pre-IPO are now facing a situation where they can neither support nor oppose the listing. Given the current atmosphere, if the public offering price is set, the valuation loss could reach 40-50%. Even if they oppose the listing, there is no way to exit (recover their investment). Missing the timing for fundraising could further delay the recovery of invested funds.

As fundraising is blocked in the over-the-counter market, the number of companies experiencing liquidity crises is increasing. This is due to rapid interest rate hikes leading to a decrease in venture investments that can tie up funds for several years. Mesh Korea, well known for its delivery platform 'Boorung,' is also facing a liquidity crisis. Its continuous investment approach for external expansion has been halted. As negative perceptions of platform businesses spread, investment decreases and job losses follow, creating a vicious cycle.

Even the government is reducing support for the venture investment market, which private capital has turned its back on. Emphasizing a 'sound fiscal' policy, the government has shifted venture and startup nurturing to be private-sector centered, cutting related budgets. The Ministry of SMEs and Startups allocated 1.945 trillion won for venture and startup nurturing next year, nearly 2 trillion won less than this year’s related budget. The Korea Fund of Funds, which participates as a liquidity provider (LP) in venture funds formed by private investors, will receive 313.5 billion won, about a 40% decrease compared to 520 billion won this year.

Given the government’s emphasis on sound fiscal policy amid increased fiscal deficits due to the COVID-19 aftermath, it is hard to blame the government. However, startup investment should be valued for its role in nurturing companies that will lead the national economy 10 or 20 years from now. There is a saying that farmers endure the lean season but still save seeds for the next year. If government support decreases in a situation where even private investment cannot be expected, the startup environment will inevitably deteriorate severely. Even while pursuing a private-sector-centered transition, a slowdown in reducing government fiscal support is necessary.

This content was produced with the assistance of AI translation services.