Start-up investors and entrepreneurs are expected to breathe a sigh of relief once the new stock market exclusively for venture tech firms and small and medium enterprises opens for trading on July 1, 2013.
The so-called Korea New Exchange, or KONEX, offers a whole new opportunity for both institutional investors and innovators to raise and redeem capital needed for venture business in a shorter time period.
This will also make venture entrepreneurs less dependent on bank loans, which significantly accounted for about 90 percent on yearly average as most find it hard to raise capital from risk-averse investors. Venture founders mostly had no choice but to secure loans backed by collaterals such as their housing assets.
Investors, on the other hand, had been reluctant to invest in start-ups as it took a very long time for them to retrieve their investments for their limited partners or clients. Also, venture investment posed a high risk of losing their investments as many start-ups fail.
However, the government aims to compensate these common defects through the establishment of the KONEX as part of its efforts to develop a creative economy and revive the sluggish youth employment.
The Ministry of Strategy and Finance and the Ministry of Science, ICT and Future Planning, the top two control towers for President Park Geun-hye’s creative economy vision, said the purpose of the KONEX is to create an ecosystem where capital can continue to circulate between venture investors and entrepreneurs.
Tech start-ups will be able to seek an initial public offering on the KONEX where investors can exit and retrieve their investments in about five years after establishments as stock regulators have considerably relaxed listing rules.
This would be much faster for investors to get back their funds than exiting via stock offerings on the tech-heavy KOSDAQ, where it takes about 10 to 14 years to list for start-ups or SMEs.
Start-ups only need to have an equity capital of 500 million won, annual sales of 1 billion won, or net profit of 300 million won in order to list on the KONEX, according to the Finance Ministry.
The other requirement they would have to meet is having technologies with growth potential.
They do not have to meet requirements such as the number of years it had been in existence since the foundation or equity capital of above 1.5 billion won applied to companies seeking IPOs on the KOSDAQ. The KONEX will serve as a platform, enabling start-ups to move into the KOSDAQ as their market cap becomes bigger.
Also, the government has deregulated by offering tax cuts and benefits to investors investing in start-ups listed on the KONEX so that capital can continue to circulate on the market.
Retail investors will be restricted from investing in KONEX-listed companies as the regulator seeks to keep volatility and speculative funds off limits. They can only indirectly invest through funds.
Thus, only institutional investors such as pension funds or “professional investors” such as venture capitalists that tend to invest for a long period of time will be allowed.
The other option for investors and entrepreneurs is mergers and acquisitions, another source for financing expansion and retrieving investment.
As part of its creative economy initiative, the government also unveiled deregulatory measures for companies seeking to acquire SMEs or start-ups with lucrative technologies.
High antitrust obstacles hindered most companies to expand through M&As.
But the government is hoping to create the ecosystem where investors and creators of venture tech firms can immediately see the financial synergy between KONEX listing and M&As.
Experts said it remains to be seen whether the KONEX could be sustainable given the lack of management efficiency for operating the KOSDAQ and Free Board, an over-the-counter trading platform for unlisted SMEs seeking fundraising.
By Park Hyong-ki (
hkp@heraldcorp.com)
