Korean startup CEOs’ ethical scandals emerge as major risk factor

Several South Korean startups have recently been hit hard by their CEOs’ unethical behavior and business-related misconduct, leading to a loss in investor trust and an outflow of funds.    

Logistics services provider Mesh Korea Co. was aiming to become a unicorn with more than 1 trillion won ($746.8 million) in corporate value as of January 2022. But the startup’s value has plunged in the aftermath of CEO Yoo Jung-beom’s fraud scandals and worsening financial conditions led by business expansion.

The CEO launched its last-mile delivery service Vroong in 2013 and garnered huge market attention in the years following. After six years, however, he was exposed for his false academic and career background, and was forced to apologize for faking his profile.

Despite the scandal, the logistics firm has pushed to expand its business size and has entered fulfillment, early morning delivery, same-day delivery and micro-fulfillment markets. With increasing operating losses from the new businesses, Mesh's financial condition took a blow from the illiquid venture capital market this year.

With a 36 billion won loan to local credit finance firm OK Capital, Mesh has been looking for potential buyers of its management rights since last month.

Korean conglomerate Eugene Group and private equity firm Stonebridge Capital have formed a consortium to buy Mesh, but investors are concerned whether the parties will agree on the deal value and complete the transaction. The logistics firm may apply for receivership in the worst-case scenario, market sources said.

Andar, one of the largest yoga wear suppliers in Korea, has gone through similar issues.

In 2020, the company suffered from scandals of sexual harassment in the workplace and misconduct by the founder’s husband. As profitability deteriorated with increasing promotion and marketing expenses, the firm was sold to online PR agency Eco Marketing Co. last year.

GC Company Corp., better known for the accommodation booking platform Yeogi Eotta, had significant damage to its brand image in 2018 as founder Sim Myeong-seob was alleged of aiding in the distribution of millions of illegal pornography items on a webhard he operated. The company, named With Innovation Corp. at the time, was sold to European PE firm CVC Capital Partners in 2019.       

Write to Chae-Yeon Kim at why29@hankyung.com
Jihyun Kim edited this article.