Private Equity Fund Faces Exit Hurdles Amid Conflict With Founder: Here’s Why

Midas PE Faces Conflict with Bootstrap Founder
Founder Claims: "Unfair Shareholder Agreement from the Start"
Midas Responds: "A Legal Contract Involving 30 Billion Won Exchange"

A private equity fund (PEF) management company is facing difficulties exiting (recovering its investment) due to a conflict with the founder of a portfolio company over equity issues. The founder claims that he was unfairly dismissed from his position as CEO and that the underlying shareholder agreement was flawed from the outset. In contrast, the fund argues that the agreement was fully legal and that the founder was dismissed for acts of misconduct. The dispute has intensified, with both parties filing lawsuits related to the matter.

According to the investment banking (IB) industry on September 18, Midas Private Equity (Midas PE) recently sent teaser letters (investment information documents) to a group of potential buyers to gauge interest in selling its portfolio company, Mirae INC. Midas PE had initially aimed for an exit through an initial public offering (IPO), but given the poor performance of Mirae INC and its subsidiaries, the fund is reportedly exploring a variety of alternatives. On top of this, the conflict with Bootstrap founder and former CEO, Choo Hyungjae, who runs its subsidiary, has made exiting the investment even more challenging. Bootstrap, a media commerce company, was acquired by Midas PE in 2022 for 30 billion won through a contract with Choo and others as a bolt-on deal (a strategy to complement or strengthen existing business), in line with Mirae INC’s advertising agency business. This contract became the starting point for the current dispute.

Founder: "Unfair shareholder agreement from the outset, fund dismissed me in retaliation"

The founder claims that an unfair contract was signed, aiming to lure him to sell his shares at a low price by dangling the prospect of an IPO for Mirae INC that was never feasible. Although it was already concluded that a listing by 2025 was impossible, the fund allegedly continued to push for a share swap. The share swap refers to the exchange of the founder’s remaining shares in Bootstrap for equity in Midas PE’s special purpose company (SPC) that owns Mirae INC, which would activate upon Mirae INC’s IPO. The founder also argues that the structure allows the fund to arbitrarily evaluate the company’s value and forcibly buy his remaining shares at half price through a call option, as well as to recover his shares at half price using delegated voting rights. He further contends that a non-compete clause prohibiting all dealings with commercial goods is also unfair.

The founder adds that when Bootstrap reported an operating loss of 2 billion won in the first half of last year, Midas PE placed the blame squarely on him and terminated his position as CEO in a "surprise" move just as he was preparing to voluntarily resign. He also claims that the shareholder meeting convened to remove him as a director (in addition to CEO) was unlawfully passed despite not reaching the required quorum of affirmative votes. Regarding severance pay, the founder alleges that Midas PE is refusing payment, citing the lack of applicable regulations. The founder has filed a lawsuit seeking to invalidate the non-compete clause and a preliminary injunction.

Midas PE: "Legal contract for 30 billion won, founder repeatedly engaged in misconduct"

Midas PE asserts that the contract with the founder was fully legal and that he received 30 billion won under its terms. The fund emphasizes that both sides spent several months reviewing and agreeing to the shareholder contract. They explain that the share swap was effectively canceled in the process of signing a supplementary agreement. The relevant clause, they argue, was only intended as a courtesy to support a joint exit if Mirae INC went public, and it was withdrawn at the founder’s request. The call option, delegated voting rights, and non-compete clause are all described as industry-standard provisions used to protect management rights.

Midas PE claims that the founder was dismissed as CEO due to repeated acts of misconduct following poor company performance. After the investment, as the company began operating at a loss, the founder allegedly notified the board of his intention to resign—breaking his contractual obligation to manage for four years—then retracted that intention and interfered with the appointment of a successor. He also reportedly sent emails to all employees warning that the company was “doomed,” constituting misconduct that left Midas PE with no other choice but to dismiss him. Midas PE states that the shareholder meeting in question only experienced a brief miscalculation regarding abstentions, which was immediately corrected to a “disapproved” result in the presence of a notary public. As for the severance pay, the company maintains that the founder himself created severance pay rules for executives, which specifically exclude payout in cases where the executive causes harm to the company; thus, payment is being withheld pending legal review. Midas PE has filed a criminal complaint with Yongsan Police Station in Seoul, accusing the founder of business obstruction and damaging the corporate value of both Mirae INC and Bootstrap.

Bootstrap logo. Screenshot from the Bootstrap homepage.

M&A Lawyer: "The contract appears standard for bolt-on M&A deals"

Experts say that the agreement appears to be a standard bolt-on M&A contract. Comprehensive share swaps are commonly used to prevent a founder from being left with non-marketable shares of an unlisted subsidiary after the parent company goes public and the fund exits; such provisions are meant to help founders exit alongside the fund. One M&A lawyer explained, "If Mirae INC is listed and the founder’s remaining shares in the subsidiary Bootstrap are not swapped, those would remain as unlisted shares with no marketability."

The lawyer also pointed out that if the founder did receive shares in the parent company through a share swap, it’s common for founders to have voting rights equal to those of the fund at the time of a sale. The lawyer further stated, "According to precedent, the delegation of voting rights can be revoked at any time, but when a founder opposes a sale or acts against the fund’s interests, penalty clauses such as call options are included to protect the fund from loss."

As for the non-compete clause, opinions are divided. Some argue that, considering the hundreds of billions of won the founder received and the particulars of the e-commerce industry, restricting dealings in commercial goods may not be excessive. Others note that judgments on non-compete obligations vary on a case-by-case basis and are therefore unpredictable. There is also the perspective that both parties voluntarily participated in the agreement. Another M&A lawyer commented, "The founder likely reviewed and negotiated the provisions with the help of an advisor. While he may argue that the advisor did not provide adequate counsel, that argument is also unlikely to be accepted."

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