The VC Market in South Korea
A venture capital firm invests money in a start-up business as an investment which has the potential of bringing in a substantial return down the road. When an entrepreneur comes up with an idea and starts a business they typically lack know-how and funding. Efraim Landa offers both through his VC firm, Effi Enterprises. A venture capital firm will provide the funds that are necessary to grow a business to the point it can sustain itself and then make a profit; and mentorship can provide the wisdom and experience that a new business needs to make it successful on every level. The VC firm invests in the company in exchange for equity when the company makes its Initial Public Offering (IPO), or is acquired by another company. VC firms usually invest with the understanding that it may take 6 to 10 years to realize a substantial profit or return on their investment. Although it is a high risk investment, it also carries with it a potential of a high return.
History of VC Market in South Korea
The venture capital market in South Korea has been very limited. One factor that has hampered the growth is their attitude about foreign investments which has not been favorable. There have also been many restrictions of the finances including stringent restrictions on making financial transfers in or out of the country. These factors have seriously limited South Korea’s VC sector. The region has not yet fully developed a shareholder culture which also limits the VC market. As a result, it has taken companies an average of 10 years to obtain a listing on the KOSDAQ. This has been challenging to the venture capitalist since they cannot sell off their shares on the market. In the early 2000s there was a sharp drop off of investments made in the high tech industry. However, the changes and progress have come in some other areas.
VC Market in South Korea Today
The VC market is very risky as it is. But in South Korea, a venture capital firm is allowed to borrow against their own capital and then invest that borrowed money into another business. This makes for a very vulnerable economy. The hope is that this form of VC funding will become much more limited in the future. One thing that is presently helping is that the South Korean government is beginning to provide financial assistance and investing. The typical South Korean VC funds are formed with a duration of only 5 years. Typically when a company first starts up, it has to rely on either borrowed funds or the funds provided by the founder. Normally, the VC firm will invest starting at about year 7 and carry it until the business can make its IPO. Approximately half of the total capital that is invested is done toward the later stages of growth. In 2012, there were several changes which has allowed for the expansion of the types of classes that can be issued. The regulatory changes that are being made by the South Korean governing agencies are allowing for greater flexibility and giving more options to VC investors.
Future of VC Market in South Korea
With the current trends leaning away from high-tech developments, it is highly expected that there will be a rise in the VC market, but in different sectors. It is expected that much of the focus of investments will be in mobile telecom and entertainment sectors. It is also likely that bio technology, education and security will end up doing well too. The government is expected to relax some of its regulations that have hampered VC firms from making investments.
Posted on March 30, 2013, in Business financing, economics, financial history, investing, VC financing, Venture Capital and tagged VC funding, VC history, VC market, Venture Capital. Bookmark the permalink. Leave a comment.