Korean start-ups prefer public offering over sale: survey

South Korean entrepreneurs prefer launching an initial public offering of their start-ups rather than selling them to buyers to achieve growth, the Korea Chamber of Commerce and Industry said Wednesday.

In a KCCI survey of some 300 tech venture firms and 50 venture capital funds, more than half of the respondents said that they would choose being listed on the stock market over seeking a merger and acquisition deal with conglomerates.

About 63 percent said they would opt for an IPO in order to boost their start-ups’ capacity by securing capital.

The majority of venture capital funds also reported that they would like to see start-ups they have invested in go public rather than be sold as part of an exit strategy. Only 20 percent of those surveyed preferred a sale.

Even though sales have historically been shown to generate higher returns for entrepreneurs and investors than public offerings, Korean entrepreneurs have felt reluctant to make M&A deals as most start-ups generally receive low valuations in sales compared to those overseas, industry sources said.

“To this end, start-ups seek to sell to buyers overseas, where they can receive a fairer value for their business,” said an industry source.

“But the dilemma facing overseas buyers is that it would still be difficult to boost their presence in Korea through an acquisition of tech start-ups and compete against conglomerates.”

Also, many entrepreneurs seemed to want to retain control of the business they started and built, thus preferring an IPO over a sale, which would mean losing control, another industry source said.

Venture capital funds seek either an IPO or a sale for their investments depending on valuation.

“Many have eyed public listings as there have not been enough buyers or sellers in Korea’s M&A market,” the source said.

By Park Hyong-ki (hkp@heraldcorp.com)