While KOSPI Eyes 10,000, Half of Listed VCs Fail to Exit in Q1 Due to 'IPO Blockage' [VC Now]

8 Out of 17 Firms With No Fund Exits
Rising Number of VCs Recording Zero Performance Fees Year by Year
IPO Market Contraction Makes Exits Increasingly Difficult

Among the 17 listed venture capital (VC) firms in Korea, 8 did not record any fund exit gains in the first quarter of this year. With the initial public offering (IPO) market frozen, exits have become more difficult, and the relative underperformance of the KOSDAQ market has made it hard for portfolio companies to be properly valued even after listing.

8 out of 17 Listed VCs Recorded Zero Performance Fees

According to the Financial Supervisory Service's electronic disclosure system on the 19th, 8 out of the 17 listed VCs in Korea posted zero performance fees in the first quarter of this year. The revenue structure of VCs largely consists of management fees for operating funds and performance fees based on fund exit results. Performance fees are incentives generated when a fund achieves results above its target. The absence of performance fees indicates that the exit market has shrunk, making it difficult to secure profits through fund liquidations.

The number of VCs not receiving performance fees is on the rise year by year. The number of VCs with no annual performance fees increased from 3 in 2023, to 5 in 2024, and 7 last year. Notably, Daesung Private Equity, Company K Partners, and Plutus Ventures have not received performance fees for three consecutive years. The total amount of performance fees is also declining: the combined total for the 17 VCs was KRW 181.2 billion in 2023, KRW 68.9 billion in 2024, and KRW 66.4 billion last year.

The polarization among VCs is intensifying. While most VCs are struggling, some have managed to record performance fees based on clear investment outcomes. Despite 8 listed VCs recording no performance fees in the first quarter of this year, Stonebridge Ventures (KRW 12.9 billion) and LB Investment (KRW 8.4 billion) posted outstanding performance fees, managing to defend their earnings even during the downturn.

Stonebridge Ventures received KRW 2 billion in performance fees from the '2015KIF-Stonebridge IT Specialized Investment Fund' and KRW 10.9 billion from the 'Stonebridge Innovation Quarter Investment Fund.' Notable successful exits that laid the foundation for these results include companies such as Livesmed, Nota, and S2W. LB Investment also secured KRW 8.4 billion in performance fees through the 'Global Expansion Investment Fund.' LB Investment is said to have invested more than KRW 4 billion in the medical device company Livesmed and ultimately recovered over KRW 50 billion.

IPO Market Freeze...Exits Blocked

The difficulty in earning performance fees stems from the chronic IPO-centric structure of the domestic venture investment market. Unlike overseas markets, where mergers and acquisitions (M&A) are active, IPOs are the only exit strategy for VCs in Korea. However, the bar for listing is getting higher.

The number of IPOs has dropped sharply this year. According to the Korea Exchange, the number of domestic IPOs stood at 149 in 2022, 163 in 2023, 148 in 2024, and 122 last year, consistently exceeding 100 annually. However, only 28 companies have gone public so far this year. With the first half of the year nearly over, it is highly likely that the number of IPOs will hit an all-time low if this trend continues.

Even after a successful IPO, a turnaround is hard to expect. The KOSDAQ market, where Korean venture companies are mainly listed, has underperformed relative to KOSPI. As of the previous day's closing, the KOSPI index stood at 9,063.84, up 204.4% from a year ago, while the KOSDAQ index reached 1,000.93, rising only 27.9% over the same period. Since it is difficult for companies to be properly valued after listing, VCs find it challenging to push for IPOs indiscriminately.

An industry insider commented, "Since each fund has a different maturity and exit schedule, it is impossible to generalize capabilities based on short-term results alone, but it is true that the overall exit market has tightened, making it difficult to earn performance fees." He added, "There is a need to relax IPO market regulations and to activate alternative exit strategies such as Special Purpose Acquisition Companies (SPACs)."

This content was produced with the assistance of AI translation services.