[Capital Market Policy Meeting] "Revitalize M&A and Secondary Markets to Ease Pressure for Premature IPOs"

Lim Hyungjun, Research Fellow at the Korea Institute of Finance

“VCs Exit Through IPOs”: 37.3% in Korea, 4.7% in the U.S.

Ease Limits on Holding Company CVCs’ External and Overseas Investments

Fund of Funds to Consider Post-IPO Distre

Calls have emerged for urgent efforts to revitalize the mergers and acquisitions (M&A) and secondary markets if KOSDAQ is to move beyond a structure characterized by “more listings and fewer delistings” and become a dynamic “high-birth, high-death” ecosystem. The diagnosis is that VC exits are heavily concentrated in IPOs, intensifying pressure for companies to go public prematurely and adding to the backlog of distressed firms.

Lim Hyungjun, a senior researcher at the Korea Institute of Finance, presented these proposals for “Reconfiguring the Venture Ecosystem and KOSDAQ” at a capital market policy meeting chaired by President Lee Jae Myung in Yeouido, Seoul, on the morning of November 13.

KOSDAQ currently has a structure that puts considerable pressure on companies to go public early because VC funding exits are overly concentrated in IPOs. IPOs account for 37.3% of all VC exits in Korea, compared with just 4.7% in the United States. Meanwhile, the number of companies with weak share-price performance after listing is growing, and delays in delisting have left distressed and vulnerable companies mixed in with high-quality ones, discouraging institutional investors. This has created a vicious cycle in which valuations and liquidity across the market decline together.

Lim stressed the need to diversify exit routes before the IPO stage. To this end, he proposed rationalizing regulations, including discussions on easing the caps on external funding (50%) and overseas investment (30%) by corporate venture capital (CVC) firms owned by holding companies, and using policy financing to revitalize the M&A market. He also said restrictions on policy funds buying existing shares should be eased to develop the secondary market and reduce pressure for early listings.

At the IPO stage, Lim said, tailored screening criteria for each industry should support innovative companies seeking to enter the market, while the responsibilities of stakeholders, including underwriters and institutional investors, should be strengthened by establishing a cornerstone investor system. He also proposed that the Korea Fund of Funds and the Korea Development Bank consider whether VC portfolio companies become distressed after listing when selecting VCs.

On the KOSDAQ promotion-and-demotion system, Lim noted that expectations and concerns coexist. He said the key will be careful implementation and safeguards that distinguish high-quality, high-growth companies from distressed and vulnerable ones, encourage high-quality companies to remain on KOSDAQ and attract institutional investment, while preventing newly listed, viable companies from being stigmatized.

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