[Inside Chodong] The Venture Ecosystem in Crisis: We Must Not Let It Collapse

'Runway' means an open path where one can run quickly to take off, that is, a runway. In the fashion industry, it is the path where models wearing beautiful clothes walk. In the venture and startup industry, the meaning of runway is slightly different. It refers to the lifespan a company can sustain itself with the funds it currently has. Saying the runway is one year left means that there will be no cash left after one year.

The venture capital (VC) sector is in a state of near shutdown, and the startup hardship period is lengthening. Although limited funds are being released by limited partners (LPs), money is concentrated only in VCs with good investment performance and top-tier venture companies, resulting in a rich-get-richer and poor-get-poorer phenomenon. After somewhat adapting to adverse factors such as high interest rates and the Russia-Ukraine war, and the market seemingly heading for a soft landing, the outbreak of war between Israel and the Palestinian armed faction Hamas has frozen investment sentiment again.

Investment Sentiment Frozen by War and More
VC and Startup Hardship Period Continues
Consideration Needed Across the Entire Capital Market

The high interest rate environment is expected to last longer than anticipated, causing bond and real estate prices to become unstable, making it difficult for institutions to recover their existing investments. Although there was hope for improved liquidity from LPs, they now face recognizing negative losses. With pension funds, mutual aid associations, financial companies, and other LPs having significantly reduced venture investment capacity, recovery of the investment environment seems distant. Even high-quality venture companies are facing difficulties in securing formal funding. Especially, the past year and a half has been a dark period for initial public offerings (IPOs). Venture companies need to go public at the right time to provide investors with an opportunity to recover their investments, but even promising venture companies have failed to list on the market.

Venture and startup investment is often compared to growing bean sprouts. When water is poured into a bean sprout strainer, it seems like the water just drains away and watering appears useless, but unbeknownst to anyone, the bean sprouts grow rapidly. Our startup ecosystem, which was growing vigorously based on government support and abundant liquidity, is now walking a precarious runway that could crash at any moment, as the venture dark period has lasted longer than the market expected, making takeoff impossible.

At times like this, close communication among LPs, fund managers, and ventures/startups is necessary. Existing shareholders who invested in ventures and startups should collectively share enough resources to overcome the hardship period. To do so, LPs must give VCs some leeway to extend the runway, and VCs must do the same for companies. The pressure felt by ventures and startups during this endless recession must be alleviated. If LPs rush to recover funds, the overall venture investment ecosystem will inevitably shrink significantly. Growing bean sprouts also requires time to wait patiently. Ventures and startups will be the main drivers of our economy in the future. From an investment perspective, they can yield greater returns. If the temporary downturn is due to unavoidable external variables rather than unethical issues such as founders’ embezzlement or breach of trust, the entire capital market needs to watch with consensus and patience.

Strategic efforts from VCs and ventures/startups are also necessary. Especially VCs with short histories to showcase externally often fail when applying for institutional LP fundraising, but they must seek survival strategies as well as plans for after the economic turnaround. Ventures and startups should strategically distinguish between areas for continued research and development and those that can be commercialized in the short term to extend their survival runway. Companies that will lead the semiconductor, battery, and next K-industry sectors can grow healthily within such capital, strategy, and social consensus.

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