VC firms queue up for IPOs as startup valuations soar

A slew of South Korean venture capital firms are knocking on the doors of the domestic stock market, with startup investments hitting the jackpot amid an unprecedented IPO boom.

With a string of Korean ventures, including Krafton Inc. behind the hit game title PlayerUnknown’s Battlegrounds (PUBG), queuing up for initial public offerings this year, their early investors or VCs seem convinced that the time is ripe to revisit their IPO plans shelved for the past couple of years. A capital increase from an IPO is expected to fund VC firms' regional expansion into Southeast Asia and India. 

On top of the recent profitable divestments, soaring valuations on their startup portfolios are expected to boost the VC firms' valuations as well, as the IPO market shows little signs of fizzling out with continuous money inflows and expectations of economic recovery

KTB Network Co., one of the country's first-generation VC firms, looks set to become the country's first venture capital IPO in two years. The venture capital arm of KTB Investment & Securities Co., said in February it would resume the IPO process to list on the junior Kosdaq market this year.

Back in 2018, it had received preliminary approval from the Korea Exchange for a listing but postponed the IPO in early 2019, citing unfavorable market conditions.

KTB Network has pocketed a 27-fold return, or 62.5 billion won, from the sale of its stake in Woowa Brothers Corp., the country's largest delivery service firm, to Germany's Delivery Hero SE.

The VC firm, with over 1 trillion won ($900 million) in assets under management, also expects to hit the jackpot from Wantedlab Inc., South Korea's first referral-based recruiting platform. Wantedlab is aiming to list on the country's junior Kosdaq market in the second half of this year. Other investors include Company K Partners Ltd. and StoneBridge Ventures Co.

StoneBridge Capital and LB Investment are also resuming the IPO process. Other Korean VCs considering IPOs include HB Investment Inc. and Capstone Partners Inc., as well as Bluepoint Partners Inc., a startup accelerator, according to industry sources.

Since Company K Partners Ltd.'s IPO in May 2019, VC firms have been absent from the country's IPO market. Lower valuations and the lackluster performance of VC firms in stock markets had discouraged its peers from following suit.

Between 2016 and 2018, several Korean VCs had made trading debuts, but their share prices had been on the decline. In 2018, SV Investment Co. saw its share price plunging below the IPO price in its fifth trading day. NAU IB Capital Co. and Aju IB Investment Co. tumbled in their first trading day. 

At the time, their IPO valuations were as high as 36 times earnings. In comparison, the VCs listed in 2019, including Mirae Asset Venture Investment  Co. and Company K Partners, were valued at 17-18 times earnings.

Now the investor frenzy about IPOs and abundant market liquidity will likely be conducive to their IPOs and may drive their valuations to the billion-dollar range, the sources said. The recent IPOs tended to be priced above their proposed range and enjoyed steady movements in their share prices after the IPO.

Some listed VCs have been far outperforming the broader market ahead of the listings of their invested companies.

Aju IB, an investor in Krafton Inc. saw its share price skyrocket by over 600% over the past year. Krafton Inc. has recently applied for a stock market listing to be the country’s first unicorn company to list on the main Kospi bourse. The label behind PUBG aims to raise over 1 trillion won in an IPO.

Mirae Asset Venture and DSC Investment Inc., which have invested in Kurly Inc., enjoyed a 300-400% surge in their share prices since the operator of premium grocery delivery startup Market Kurly began the preparation for a US listing.

"Favorable market conditions for startups and VC firms will lead to a series of IPOs," said one of the venture capital industry sources. "But we are unsure about the timing to list, with blockbuster IPOs scheduled for this year."

Industry observers said a majority of unlisted VCs would opt to go public on the junior stock market next year.

Write to Jong-Woo Kim at jongwoo@hankyung.com
Yeonhee Kim edited this article.