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INVESTMENT
OPPORTUNITIES
IN KOREA
PRIVATE EQUITY &
VENTURE CAPITAL
KOREA,
Where Success Knows No Limits
INVESTMENT
OPPORTUNITIES
IN KOREA
PRIVATE EQUITY &
VENTURE CAPITAL
Contents
04 Korea at a glance
Economic indicators
06
Status and prospects of Korean PEF market
Status of the Korean PEF market
Growth of the Korean PE market
Fund cycle
PEF regulation reform
Korean LPs
16
Status and prospects of Korean venture capital market
Korean venture companies
Korean venture capital companies
Korean venture capital funds
VC funding resources
VC investment performance
Exit
Prospects for the Korean VC market
KOREA AT
A GLANCE
05
01 KOREA AT A GLANCE
Economic
indicators
Economic indicators
Classification
2007
2008
2009
2010
2011
2012
2013
1,122.7
1,001.7
902.3
1,094.3
1,202.7
1,222.4
1,304.3
5.1
2.3
0.2
6.0
2.9
1.8
3.0
Exports (USD billion)
371.5
422.0
363.5
466.4
555.2
547.9
559.6
Imports (USD billion)
356.8
435.3
323.1
425.2
524.4
519.6
515.4
GDP (USD billion)
Real GDP growth rate (%)
Balance of trade (USD billion)
14.6
-13.3
40.4
41.2
30.8
28.3
44.0
Unemployment rate (%)
3.2
3.2
3.6
3.7
3.4
3.2
3.1
Consumer price index (%)
2.5
4.7
2.8
3.0
4.0
2.2
1.3
Rate of 3-year government bond
5.2
5.3
4.0
3.7
3.34
2.82
2.86
262.0
201.0
270.0
292.0
306.4
327.0
346.5
Foreign exchange reserves (USD billion)
* Source: Statistics Korea, The Bank of Korea (2013)
Korea has been among the fastest growing OECD countries in the past decade, its growth
characterized by exports and large companies. However, considering the strong competition
with emerging economies, like China, in low- and medium-end markets, and with advanced
economies in high-end markets, the Korean government is rolling out a series of initiatives to
pursue new drivers of growth, i.e. encouraging SMEs and promoting venture businesses.
Looking at the financial investment opportunities in Korea, especially the private equity and
venture capital investment arena, and in order to ensure its competitiveness with emerging
economies, which are building walls to regulate the financial industry, investment professionals
in Korea are looking to expand their interests beyond the home market and seek international
collaboration with global players. This brochure gives an overview of Korea’s finance industry and
outlines the changes and initiatives expected to improve its opportunities.
STATUS AND
PROSPECTS OF
KOREAN PEF
MARKET
07
02 STATUS AND PROSPECTS OF KOREAN PEF MARKET
Status of the
Korean PEF
market
Current status of PEF investment
•It has been 10 years since the introduction of private equity funds (PEFs) in Korea, and the
private equity (PE) market has since rapidly expanded in size and significance. As of the end of
2014, registered domestic PEFs numbered 277 and total committed capital reached KRW 48.9
trillion (USD 43.5 billion). The average annual growth rate of the PEF industry since 2004, when
PEFs were first introduced in Korea, is 29%, which is considered high.
•After the global financial crisis, alternative investments by pension funds and institutional
investors have been a primary source of revitalizing economies and corporate restructuring.
In today’s depressed mergers and acquisitions (M&A) market, where large corporations are
reluctant to engage in deals due to risk concerns, PEFs have become integral players in driving
major deals. Their importance is underscored by their being party to virtually all recent big
M&A deals.
•In this and other ways, the tenth anniversary of the introduction of PEFs to Korea represents
an important marker in their evolution. It is only now that the liquidation of the first wave of
Korean PEFs, which generally have a 10-year term, is taking place and offering a means of exit
for investors. This is a strong sign of the PE market’s maturation in Korea, as the PE firms that
have served as catalysts for corporate restructuring and the main growth capital provider are
now being assessed for their virtuous contribution to the market and economy.
PEF commitment and number of PEFs
250
No. of PEF
Committed capital (Unit: KRW trillion)
37
200
40.7
45.2
29.3
150
24.6
50
0
277
18.5
100
13.5
8.3
44
2007
76
2008
110
2009
148
2010
* Source: Financial Supervisory Service (FSS), as of December 2014
* Currency conversion based on March 12, 2015 rate.
181
2011
226
2012
237
2013
2014
50
45
40
35
30
25
20
15
10
5
0
08
Growth of the
Korean
PE market
PRIVATE EQUITY & VENTURE CAPITAL
Growth factor: Pension fund’s alternative investment
Within the domestic PEF market, the main limited partners (LPs) are pension funds, mutual aid
associations, banks, insurance companies, and other forms of capital. Among these, national
pension funds play the biggest role. In 2013, the accumulated investment in PEFs of Korea’s
National Pension Service totaled KRW 11.1 trillion, 21% of all PEF investment in Korea. However,
allocations for alternative investment including PEF are considered low (10.1%) in comparison to
those of the United States (25%), Switzerland (28%) and Canada (20%). Korea’s National Pension
Service is the 4th largest pension fund in the world, but PEF investments account for only 2.5% of
the total assets under management.
Alternative investments of Korea's national pension fund
4.9%
(11.9bn)
3.6%
(8.0bn)
2009
2008
8.1%
(24.1bn)
6.5 %
(17.5bn)
2010
2011
(Unit: %, KRW trillion)
10.1%
(36.3bn)
9.1%
(29.8bn)
2012
2013
Ratio of PEF investment of Korea's national pension fund
(Unit: %, KRW trillion)
10.3
9.1
8.0
5.7
3.1
0.0
2005
0.7
2006
3.8
1.7
2007
2008
2009
2010
2011
2012
2013
* Source: FSS (2013)
•The National Pension Service contributed a total of KRW 1.075 trillion to PEFs and venture
capital in 2013, which could be seen as an effort to foster domestic PEFs as a public fund.
However, compared to the scale of pension funds and alternative investment in other
countries, the Korean PEF market still has a lot of room to grow.
09
02 STATUS AND PROSPECTS OF KOREAN PEF MARKET
Growth potential: PE penetration ratios
To measure the maturity of the PEF market in Korea, we can compare PE penetration ratios by
country (ratio of PE against GDP). The graph below shows that the PE penetration ratios of Israel
and the United States, the leading countries of PE, have been 1.62% and 1.01%, respectively, in
the past two years (2012 - 2013), while the PE penetration ratio of Korea stayed at a mere 0.27%.
PE penetration ratios by country
PE investment / GDP (%)
2.00
1.80
1.60
2012
1.74
1.62
2013
1.40
1.20
1.07
1.01
1.00
1.04
0.89
0.80
0.60
0.40
0.24 0.28 0.20 0.21 0.20
0.18
0.20
0.00
Israel
United United South
States Kingdom Korea
India
0.09 0.12 0.06 0.09 0.09 0.08 0.04 0.06 0.09 0.04 0.04
0.03 0.070.01 0.05 0.01
Brazil
SSA* Poland China South Japan Turkey Russia MENA**
Africa
* Source: EMPEA, as of September 2014; * Sub-Saharan Africa; **Middle East & North Africa
Of course, Korea’s PEF market is not expected to become as big as that of Israel or the United
States. However, considering recent deregulations in the PEF and M&A market, this comparison
of PE Penetration Ratios indicates significant growth potential in the Korean PEF market.
Fund cycle
PE fundraising
Funds for PE in Korea have been steadily increasing each year. In 2013, KRW 7.4 trillion was added
to the total capital commitment, becoming the 2nd largest commitment since the introduction
of PEF (the largest being KRW 9.7 trillion in 2012). To overcome low interest rates and the slump
in the stock market, large institutional investors are shifting their interest toward the PEF market
rather than just endorsing conventional investment tools like stock and fixed income. This
development has been evident in the past 10 years.
Yearly added funds (committed capital)
Region
2007
2008
2009
2010
2011
2012
2013
Korea (USD billion)
2.6
5.2
5.7
6.8
6.0
9.0
6.9
World (USD billion)
668
680
306
275
266
249
-
* Source: FSS (2013), Preqin
10
PRIVATE EQUITY & VENTURE CAPITAL
The annual inflow of PEF investment is quite steady. However, each fund has yet to grow in size.
In 2013, 114 of the 237 registered PEFs had committed capital of less than KRW 100 billion; 76
companies have commitments of KRW 100 - 300 billion; and 47 companies have commitments
of more than KRW 300 billion.
Commitment by scale
Size of fund
Commitment (KRW billion)
Large
More than 300
Medium
100 – 300
Small
Less than 100
Number of PEFs
47 (20%)
76 (32%)
114 (48%)
Total
237 (100%)
* Source: FSS (2013)
The number of small and medium PEFs is high because there was more demand for small
and medium project-based PEFs managed by newer managing GPs rather than for blind PEFs
managed by well-established and reputable GPs.
omestic PEFs can be broadly categorized into two groups: independent PEFs and financial
D
PEFs. While banks, securities companies, and finance companies were the more active PEF
managers in the beginning, the growth of PEFs in number and size has made independent PEFs
the leading player in the PEF market.
Major domestic GPs
Commitment
(KRW billion)
Number of PEFs
Korea Development Bank
6.010
14
MBK Partners
5.901
16
03
Hahn & Company Korea
2.033
3
04
Macquarie Korea Opportunities Management Limited (MKOM)
2.003
3
05
Mirae Asset Financial Group
1.876
5
06
Vogo Investment Group
1.803
6
07
UAMCO Ltd.
1.605
5
08
IMM Private Equity
1.518
10
09
STIC Investments
1.456
5
10
Industrial Bank of Korea
1.303
12
11
Shinhan Private Equity
1.183
2
12
Q Capital Partners
1.155
8
13
KTB Investment & Securities
1.084
6
14
EQ Partners
1.062
4
15
SkyLake Incuvest
1.018
9
Ranking
General Partner (GP)
01
02
* Source: FSS, as of December, 2014
11
02 STATUS AND PROSPECTS OF KOREAN PEF MARKET
Investment
The most common investment strategies in private equity are generally: leveraged buyouts,
venture capital, mezzanine capital, and distressed investments. Because Korean PEFs were
introduced to induce buyouts, most major Korean PE investment strategies are geared toward
buyouts in M&A. After the introduction of PEFs, the amount of M&A deals was highest in 2013
while the ratio of PEFs from the total amount of M&A deals increased rapidly to 11%. It was only
1.3% in 2011.
Value-Up
ue to the domestic regulatory environment that limits the leverage level of PEFs, returns on
D
the fund have been relatively limited. In addition, the holding periods of investee companies
for Korean PEFs are estimated to be shorter than those for global PEFs. The holding periods of
Korean PEFs are 2 - 3 years while those of overseas PEFs are usually 5 - 10 years. As returns on
funds have not been as high as investors expected, there is a need to “value up,” or drive earnings
growth through more active fund management.
Exits
Many portfolio exits are expected to converge this year due to the upcoming maturity terms
of earlier-established PEFs. In 2012, it was difficult to divest holding assets due to the recession
caused by the global financial crisis (only KRW 2.1 trillion); however, the total amount of exit
increased by 57% in 2013 (KRW 3.7 trillion). This is because many PEFs, which formed during the
earlier stage of the system (2005 - 2008), dissolved due to an increase in fund expirations.
Annual PEF liquidation and exits
Year
2004 – 2010
2011
2012
2013
Total
No. of PEF liquidated
14
10
15
34
73
Exits (KRW trillion)
2.7
3.8
2.1
3.7
12.3
* Source: FSS (2013)
12
PEF
regulation
reform
PRIVATE EQUITY & VENTURE CAPITAL
Due to the excessiveness and complexity of regulations, the growth and contribution of Korean
PEFs to the general capital market had been limited compared to other developed countries.
Thus, the government presented a plan to reorganize the PEF system which would minimize
PEF limitations and vitalize the PEF market. In September of 2014, the final amendments to the
Financial Investment Services and Capital Markets Act (FSCMA) were submitted and they are
now pending. These amendments are anticipated to create favorable conditions for domestic
PEFs to be able to operate and grow more freely.
PEF contribution (2012)
USA
UK
Korea
Hedge fund / GDP (net assets)
8.83%
11.8%
0.09%
PEF / GDP (new investment)
0.72%
1.22%
0.47%
* Source: FSS, TheCityUK
T he major details of this plan can be summarized as relaxing inter-group investment restrictions,
amending the minimum investment limit, adopting a public fund of funds, lessening
management restrictions, and diversifying allowed fund types.
Reorganization of PEF system
Four private fund types will be combined into two investment vehicles
The current types of private funds – general private funds, hedge funds, and PEFs (the four
types of which are in the table below) – will be combined into two types of PEFs: “Specialized
Investment Type Private Collective Investment Vehicle” (hedge funds) and “Management
Participation Type Private Collective Investment Vehicle” (PEFs). This improvement will simplify
the types of funds and separate regulation for public funds from other funds.
13
02 STATUS AND PROSPECTS OF KOREAN PEF MARKET
Types of PEF in Korean law (present)
PEFs for corporate
financial stability
PEFs for corporate
restructuring
PEFs for overseas
resource development
Industry Development
Act
Overseas Resource
Development
Business Act
2010
(Effective for 3 years)
2009
(Replacing CRC)
2006
Corporate
restructuring
corporations (no
participation in
management)
Companies selected
for restructuring
Investment
in companies
specializing in
development of
overseas resources
Type
PEFs
Applicable law
Capital Market Act
Time of adoption
2004
(former Indirect
Investment Asset
Management
Business Act)
Types of investment
Participation in
management
Registration
Financial Services Commission
Characteristics
Buy-out purpose
Flexible in Investment
Type
LP Commitment
No. of registered
companies
239
20
3
6
Total amount of capital
KRW 42.2 trillion
KRW 3.92 trillion
KRW 60.1 billion
KRW 2.3 trillion
Financial Services Commission (Consent of the
Ministry of Trade, Industry & Energy)
Tax cuts, government
financing, existing
period
* Source: FSS as of the end of September, 2014
Reasonable limits for PEF investors
•The qualification of PEF investors will be limited to those with good financial standing, the
minimum amount of investment being KRW 500 million; but a “publicly offered fund,” which
is a fund of funds, will be established in order to absorb the demand of individual small-sized
investors.
•Deregulation for publicly offered funds
1. General fund of funds can be invested toward PEFs within 5% of its assets.
2. PE fund of funds should invest more than 40% of its assets to PEFs.
3. PE fund of funds must diversify its investment into more than 3 PEFs.
Allocation / Management of PEF funds and assets
PEFs will be allowed to use multiple layers of SPCs in their investments and will be permitted
to allocate up to 30% of their net assets in securities without any management participation
purpose. Currently, PEFs are only allowed to use a single layer of SPC in their investment
in a target company and can allocate only up to 5% of their assets in securities without a
management participation purpose. This amendment will provide flexibility to PEFs’ interim
management of un-invested funds, which may help relieve the current excess of dry powder.
14
PRIVATE EQUITY & VENTURE CAPITAL
The Current Pre-Registration System will change to a Post-Reporting System
PEFs are currently required to register in advance; the amendments require that PEFs register
with the Financial Supervisory Service (FSS) within two weeks of their establishment.
Sale & Advertising PEFs
Previous requirements for investor investigations will be relaxed. The advertisement of PEFs is
currently prohibited. The amendments will allow for partial advertisements and direct product
management transactions.
Regulations on PEF management for groups specialized in financial services
Even though a Financial Service Specialized Group is categorized as a large company,
unreasonable regulations related to PEF management will be removed, such as the prohibition
of voting rights toward an affiliated company, tight regulation of public release, forced disposal
of the company the PEF had invested in after 5 years, etc.
Restrictions on transactions with related parties
•O ther than transactions involving certain exceptions (e.g., transaction on a securities
exchange), PEFs may not engage in related party transactions.
•PEFs may not acquire securities issued by (i) an affiliate of a GP or (ii) an affiliate of an LP that
has de facto control over the PEF that exceeds a certain threshold amount (which will be
determined by the Presidential Decree of the FSCMA).
•(i) Investment in equities of related group companies will be limited to 10% → 5% of the total
permitted equity investment of the total funds under management, (ii) 30% → 25% of each
fund’s total asset.
The revisions to the PEF system will reform the factors that restricted the PEF market in each
stage: Fund formation, investment, management, and exit. These amendments will help build a
better foundation for all Korean PEFs to grow more in the future and to improve the dynamics
and contribute to the vitalization of a real economy.
02 STATUS AND PROSPECTS OF KOREAN PEF MARKET
15
Offshore PE Funds – Fundraising in Korea
•Under the FSCMA, all offshore funds marketed and sold to Korean investors are required to be
registered with the FSS before it is offered to Korean investors unless such offers were made
on a reverse inquiry basis or the interests of the offshore fund were offered to Korean investors
through a Fund of Funds that invests in multiple offshore funds.
•In other cases, individualized discretionary investment accounts managed by offshore fund
managers are also offered to the Korean investors.
•Offshore fund managers with investment discretion over a fund with Korean investors must
acquire a cross-border discretionary investment manager (“CBDIM”) license from the FSS prior
to marketing the investment account subject to limited exceptions.
•The marketing of offshore funds to Korean investors must be conducted through a locally
licensed distributor (i.e., a domestic financial institution that is licensed to market and sell fund
products). In this regard, representatives of the offshore funds must not be engaged in direct
marketing activities vis-à-vis Korean investors unless they possess a local fund distribution license.
Korean LPs
Asset size of major Korean LPs
Ranking
Limited Partner (LP)
Size (USD billion)
01
02
03
04
05
06
07
08
09
10
11
12
13
National Pension Service (NPS)
Korea Post (Office of Postal Service)
Korea Finance Corporation (KoFC)
Korea Investment Corporation (KIC)
The Korean Teachers’ Credit Union (KTCU)
The Korea Teachers Pension (TP)
The Military Mutual Aid Association (MMAA)
Public Officials Benefit Association (POBA)
Government Employees Pension Service (GEPS)
Growth Ladder Fund
The Police Mutual Aid Association
Construction Workers Mutual Aid Association (CWMA)
Korea Venture Investment Corp (KVIC)
436
103
70
65
23
15
6.9
6.2
4.2
1.8
1.6
1.5
1.4
* Source: ASK 2014
Asset size of Korean life insurance companies
Ranking
Company Name
01
Samsung Life Insurance
AUM (KRW trillion)
Ranking
Company Name
184
06
MiraeAsset Life Insurance
AUM (KRW trillion)
20
Shinhan Life Insurance
18
02
Hanwha Life Insurance
78
07
03
Kyobo Life Insurance
70
08
Tong Yang Life Insurance
17
04
Nonghyup Life Insurance
45
09
Heungkuk Life Insurance
16
05
ING Life Insurancew
23
10
Allianz Life Insurance
14
* AUM = [Total Asset – Non-operating Asset], Source: Korea Life Insurance Association as of December, 2013
16
STATUS AND
PROSPECTS OF
KOREAN VENTURE
CAPITAL MARKET
17
03 STATUS AND PROSPECTS OF KOREAN VENTURE CAPITAL MARKET
Korean
venture
companies
At the end of 2013, a total of 29,135 companies were classified as venture companies and 700
companies, or 2.4% of the total, were sponsored by venture capital funds. By industry, 72% of
the venture companies are from the manufacturing sector and 16% from IT software. And by
age, 1-5-year-old companies represent 39.5%, while 5-10-year-old companies represent 26% and
10-20-year-old companies represent 26.1% of the total venture companies.
Venture Companies
24,645
26,148
28,193
29,135
18,893
12,218
7,702
7,967
2003
2004
14,015
15,401
9,732
2005
2006
2007
2008
2009
2010
2011
2012
2013
* Source: Venture-In (2013)
Korean
venture
capital
companies
Current Status of Venture Capital Companies
•At the end of 2013, 101 VC companies were registered and active.
•In addition to the VC companies, 6 new technology financing companies and 8 limited liability
companies (LLCs) were managing the KVF sponsored funds.
•After the establishment of the 1986 Support for SME Establishment Act, a total of 249 VC
companies registered while 148 delisted. From 2001, new registrations slowed. When the
requirements for paid-in capital became less intensive in 2005 and 2009, new registrations
rose. In 2013, the number of new registrations dropped to only 3.
•Among the 101 VC companies that were actively managing in 2013, 51 (50.5%) companies
had been operating for more than 10 years while 16 (15.8%) companies were less than 3 years
old.
18
PRIVATE EQUITY & VENTURE CAPITAL
VCs by age (Unit: Companies, %)
Years of Mgmt
~ 3 years
3 - 5 years
5 -10 years
10 -15 years
At least 15 years
Number of VCs
18
18
16
31
20
101
15.8
17.8
15.9
30.7
19.8
100.0
Percentage
Total
* Source: KVCA (2013)
•Looking at the paid-in capital distribution by scale, there are 51 (50.5%) startup investment
companies under KRW 10 billion and 12 (11.9%) startup investment companies over KRW 30
billion.
VCs by Paid-in Capital Paid-in Capital
Number of VCs
Percentage
(Unit: Companies, %, KRW billion)
~5
5-7
7 - 10
10 - 20
20 - 30
30 - 50
At least 50
Total
15
13
23
31
7
9
3
101
14.8
12.9
22.8
30.7
6.9
8.9
3.0
100.0
* Source: KVCA (2013)
Korean
venture
capital
funds
Fund formation & Investment
•In 2013, 49 new funds were established, recording a total of about KRW 1.5 trillion. The average
size of newly established funds is about KRW 31 billion, while the average size of active funds
is about KRW 24 billion.
•Of the 49 new funds formed, 34 investment funds specialize in investing in small and medium
enterprises and venture businesses, 11 in the cultural sector, 3 are patent related, and 1 is
related to the bio-industry.
VC Funding
No. of New Funds
Amount New
Cum. No. of Funds
Amount Total
(Unit: number, KRW billion)
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
40
39
46
48
67
51
74
67
67
41
2013
49
709
645
945
862
1,128
976
1,421
1,590
2,286
773
1,537
430
423
400
350
333
336
366
393
417
412
431
3,891
4,246
4,758
4,878
5,076
5,645
6,574
7,614
9,460
9,374
10,410
* Amount = committed capital, Source: KVCA (2013)
19
03 STATUS AND PROSPECTS OF KOREAN VENTURE CAPITAL MARKET
Amount of new funds for VCs
Amount (KRW 100 mn)
25,000
Amount
22,865
No. of funds
20,000
194
15,000
14,209
14,341
90
5,000
0
11,279
7,910
10,000
9,454
6,290
7,086
8,617
2001
2002
15,374
9,751
7,727
6,450
60
2000
15,899
40
39
46
2003
2004
2005
48
2006
74
67
51
2007
2008
67
67
2010
2011
41
2009
2012
40
2013
* Source: KVCA (2013)
VC funding
resources
•At the end of 2013, the total commitment for the 431 VC funds reached KRW 10.4 trillion while
the principal investment resource for VC companies reached KRW 1.1 trillion. Total investment
resources amounted to more than KRW 11 trillion.
•Committed capital for VC funds consistently increased. Between 2009 and 2011, new
commitment consistently recorded at least KRW 1 trillion every year. As of the end of 2013,
committed capital for VC funds accounts for 90.1% of the total investment resources.
VC Funding Resources
Other 1.0
Foreigners 0.4
Personal 2.0
Pension funds /
Mutual aid
9.2
VC
14.3
General
corporate
14.8
Government
agencies
41.7
Financial
institutions
16.6
20
PRIVATE EQUITY & VENTURE CAPITAL
Annual VC investment resources
(Unit: KRW billion)
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Committed capital
3,891
4,246
4,758
4,878
5,076
5,645
6,574
7,614
9,460
9,349
10,407
Principal investment
2,195
1,987
1,750
1,703
1,883
1,471
1,309
1,147
1,177
1,169
1,142
Total
6,086
6,233
6,507
z6,581
6,959
7,116
7,883
8,761
10,637
10,518
11,549
(Unit: %, KRW trillion)
14,000
Committed capital
Principal investment
12,000
10,000
6,000
1,750
1,703
1,883
2,195
1,987
3,891
4,246
4,758
4,878
5,076
2003
2004
2005
2006
2007
4,000
0
1,169
9,460
9,349
2011
2012
1,147
8,000
2,000
1,142
1,177
1,471
1,309
5,645
6,574
7,614
2008
2009
2010
10,407
2013
* Source: KVCA (2013)
Top 10 venture capital funds (Unit: KRW billion, %))
Funds Raised
(A)
Invested Amount
(B)
Invested Ratio
(B/A, %)
Dry Powder
(A-B)
Korean Investment Partners
(KIP)
682
464
68.0
218
02
LB Investments
585
367
62.7
218
03
STIC Investments
488
354
72.5
134
04
Atinum Investment
467
293
62.8
174
05
INTER VEST
398
277
69.6
121
06
Hanwha Investment
338
271
80.1
67
07
IMM Investment
309
208
67.3
101
08
KTB Network
306
115
37.5
191
09
Premier Partners
291
181
62.3
110
10
HB Investment
288
262
91.0
26
4,152
2,792
67.2
1,360
Ranking
VC Investment Company
01
Total
* Source: KVCA (2014)
21
03 STATUS AND PROSPECTS OF KOREAN VENTURE CAPITAL MARKET
VC investment
performance
•Korea’s venture capital market has been on the rise in recent years. Total investment as of the
end of 2013 was KRW 4.4 trillion, with 2,771 venture businesses receiving such investment.
•New investment performance in 2013 was about KRW 1.4 trillion, which is a 12.3% increase
from the previous year. In addition, the number of newly invested enterprises was 755, and the
average investment amount per enterprise was KRW 1.8 billion, which is a 2.2% increase from
2012.
Yearly Investment
(Unit: KRW 100 million)
50,000
New investment
45,000
40,000
35,000
30,000
25,000
44,673
35,913
30,448
28,827
21,957
27,627
20,211
15,000
10,000
9,917
7,573
6,306
27,628
24,781
22,675
2001
2002
2003
12,333
10,910
2004
2005
2006
13,845
7,247
7,333
6,044
6,177
2000
12,608
8,671
8,913
5,000
39,525
31,010
26,613
26,271
30,514
20,000
0
Amount invested
2007
2008
2009
2010
2011
2012
2013
* Source: KVCA (2013)
Analysis of Investment Patterns
Classified by Industry Type
•In 2013, the information technology sector received the most investment (35.2%), followed by
general manufacturing (22.5%), and cultural contents (20.6%).
•Compared with the investment amount from the previous year, investment in information
technology, bio-technology, service / education, and distribution increased by 38.9 - 155.1%,
while investment in general manufacturing and cultural contents decreased 9% and 18%,
respectively.
22
PRIVATE EQUITY & VENTURE CAPITAL
Type of investment
Looking at investment type, preferred stocks represented the majority vehicle (36.4%), then
common stocks (25.0%), bond type investments (22.0%), and projects (14.0%).
Investment by industry
Investment by type
Percentages (100%=KRW 1.4 trillion)
Percentages (100%=KRW 1.4 trillion)
Environmental protection 1.8
Other 1.4
Distribution 3.6
Service/
Education
4.3
BW
12.0
Biotech
10.6
Cultural
content
20.6
Other 2.6
Information
technology
35.2
Preferred
stock
36.4
BW
12.0
Projectbased
14.0
General
manufacturing
22.5
Common
stock
25.0
Investment in early-stage businesses accounted for 45.3% of the total number of companies
invested, while investment accounted for 27.2% of the businesses in the expansion stage and
25% in the later stage.
Investment by amount
Investment by enterprise
Percentages (100%=KRW 1.4 trillion)
Expansion
stage
23.5
Percentages (100%=755 enterprises)
Expansion
stage
27.2
Later
stage
49.8
Early
stage
26.7
Early
stage
45.3
Later
stage
27.5
* Source: KVCA (2014)
* Stage classification: Early stage (Less than 3 years), Expansion stage (3-7 years), Later stage (Over 7 years)
The top ten VC companies represented investments worth KRW 555.8 billion, or 40.1% of the
total invested amount of KRW 1.4 billion in 2013.
23
03 STATUS AND PROSPECTS OF KOREAN VENTURE CAPITAL MARKET
Exit
Status of Exit by Type
•In 2013, VCs used various types of exit tools, of which trade sales and redemption (49.8%)
took up the highest proportion, followed by project realization (23.5%), and then Initial Public
Offerings (IPOs) (15.7%), which took up the smallest proportion.
•Unlike in the U.S., M&A has not been an effective exit tool for Korean venture capital firms. This
is primarily because there are very few companies both able and willing to do M&A.
•Another reason for the limited M&A activity is likely the unwillingness of most entrepreneurs
to relinquish management control. There is also a cultural aversion toward M&A, especially
hostile ones.
Types of exits
(Unit: %)
IPO
M&A
Project
0.1
Off board transactions & Redemptions
1.6
1.0
0.6
Other (Overseas Investments.etc.)
2.8
10.7
61.1
64.7
18.5
19.6
15.1
2.4
17.7
2003
2004
0.8
59.7
15.6
3.3
55.6
16.5
4.7
62.5
17.7
21.4
23.2
2.6
17.2
2005
2006
2007
53.8
23.2
59.2
56.2
61.3
56.0
49.8
16.4
23.7
18.5
22.4
23.5
1.5
1.0
18.1
17.8
0.3
15.7
2011
2012
2013
5.9
7.1
17.1
15.7
4.9
14.2
2008
2009
2010
* Source: Korean Venture Capital Association (December, 2013)
IPO trend in KOSDAQ
•There were 37 KOSDAQ listings in 2013, which was an increase of 15 from 2012 (22), whereas
the number of companies delisted (including 8 SPAC companies) decreased, 48 in 2012 to 33
in 2013.
•Compared to 2012, IPO applications fell while IPO approvals rose. Public offerings rose by
65.1%.
Number of venture companies that received VC investment
•With the addition of 37 newly listed enterprises and delisting of 33 enterprises, there are a total
of 1,009 enterprises receiving VC investment.
•Among new IPOs in 2013, 23 are venture enterprises, of which 22 are recipients of VC
investment.
24
PRIVATE EQUITY & VENTURE CAPITAL
Trends in the KOSDAQ IPO, 2003-13 Paid-in Capital
(Unit: Companies, %, KRW billion)
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
No. of listed companies
879
890
918
No. of IPOs
71
52
70
56
67
38
55
76
60
22
37
No. of IPOs of venture companies (A)
58
37
61
43
52
29
29
34
35
17
23
36
28
49
35
44
25
20
26
30
14
22
No. of IPOs of VC-backed venture companies (B)
B / A (%)
963 1,023 1,038 1,028 1,029 1,031 1,005 1,009
62.1% 75.7% 80.3% 81.4% 84.6% 86.2% 69.0% 76.5% 85.7% 82.4% 95.7%
* Source: Korea Exchange
(Number of Companies)
180 171
No. of IPOs
160
140
No. of venture backed IPOs
134
120
105
100
80
73
71
60
53
70
58
52
36
40
37
61
49
28
76
67
56
43
52
35
44 38
20
0
No. of VC company IPOs
153
2001
2002
2003
2004
2005
2006
2007
60
55
29
2008
34
29
25
20
2009
26
2010
35 30
2011
37
22
17 14
2012
23 22
2013
* Source: Korea Exchange (2013)
Prospects for
the Korean
VC market
Future VC funds
•Government commitment is expected to increase to KRW 1.7 trillion (from KRW 1.5 trillion in
2013) to be in line with venture business-supporting policies.
•Due to the larger contributions of major LPs, venture capital funds are steadily increasing.
More large VC funds are expected to be established.
•Currently, government-initiated public institutional investors, such as KVIC and the Korea
Finance Corporation, provide 42.9% of the newly formed funds. They are expected to continue
playing a vital role in supporting VC enterprises.
•The biggest fund type is the VC investment fund sponsored by the Korea Venture Fund.
However, KRW 1.2 trillion worth PEFs and new technology funds are also expected to be set
up in the year 2014 for VC investment.
25
03 STATUS AND PROSPECTS OF KOREAN VENTURE CAPITAL MARKET
Future VC investment
•New investment toward VC enterprises in 2014 is expected to rise to KRW 1.52 trillion, from
KRW 1.4 trillion in 2013.
•The amount of VC funds was low (KRW 773 billion) in 2012, but investment trends are
expected to remain steady due to the overflow of previously accumulated funds.
•In November 2013, total VC funds exceeded KRW 10 trillion, reaching an all-time high.
•In line with its policy to support small- and medium-sized enterprises, government policies
supporting new enterprises and venture businesses are expected to positively affect the
investment growth of VC funds.
Recent and expected VC investment trends
•In 2014, the information technology industry received the most investment, accounting for
29% of the total investment. This industry is expected to continue attracting investment in the
coming years.
•The cultural contents industry and the biotechnology industry have attracted 25.3% and
14.7% of the total investment, respectively. The general manufacturing industry (21.2%) is
expected to attract relatively low amounts of investment compared to previous years.
•In line with current trends, preferred share (44.1%) and common stock (54.1%) remain to be
considered as primary investment types.
Sources
Homepage
The Bank of Korea
www.bok.or.kr
Financial Services Commission
www.fsc.go.kr
Financial Supervisory Service
www.fss.or.kr
Korean Venture Capital Association, KVCA
www.kvca.or.kr
Korean Federation of Banks
www.kfb.or.kr
Korea Life Insurance Association
www.klia.or.kr
General Insurance Association of Korea
www.kfpa.or.kr
National Pension Service, NPS
www.nps.or.kr
Korea Exchange, KRX
www.krx.co.kr
Venture-In
www.venture-in.co.kr
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