[IPO Spotlight] LB Investment Market Knock... Question Mark on Success

High Profits from Hive, Pearl Abyss, Kakao Games, etc.
VC Industry Faces Recession Due to Interest Rate Hikes
IPO Market Sentiment Cold Despite Stock Market Rebound

[Asia Economy Reporter Park Hyungsoo] Venture capital (VC) LB Investment is going public on the KOSDAQ market. Although the domestic stock market has rebounded this year, the initial public offering (IPO) market has yet to warm up. Attention is focused on whether LB Investment, which has earned more than 10 times returns by investing in HYBE, Pearl Abyss, and Kakao Games, can receive the desired corporate valuation.

According to the Financial Supervisory Service's electronic disclosure system, LB Investment is offering 4.62 million shares, including 3.08 million newly issued shares and 1.54 million existing shares. The desired price range per share is 4,400 to 5,100 KRW, with the offering size between 20.3 billion and 23.6 billion KRW. From the 23rd to the 24th of next month, a two-day bookbuilding process targeting institutional investors will be conducted to finalize the offering price. The IPO process aims for a listing on the KOSDAQ market in March. Mirae Asset Securities is the lead underwriter.

LB Investment originated as LG Startup Investment, established in 1996 by LG Electronics, LG Cable, and others. Following the separation of group affiliates, the company changed its name to LB Investment in 2008. Over 27 years, the cumulative investment amount has reached 1.7 trillion KRW. Assets under management (AUM) have grown to approximately 1.2 trillion KRW. The largest shareholder is LB, holding 79.5% (18.46 million shares) after listing.

LB Investment demonstrated its capabilities by making early investments in HYBE, Pearl Abyss, and Kakao Games. From 2017 to 2021, it recovered about 630 billion KRW, which is three times the invested principal. It has also invested in Musinsa, Ably, and Musicow.

Park Kiho, CEO of LB Investment, joined the company in September 2003 and has served as head of the venture investment division and head of the VC division, overseeing venture company investments. He has accumulated extensive experience and know-how in the venture capital field over a long period. He was appointed CEO in March 2019. Park, a Yonsei University economics graduate, previously worked at KB Startup Investment and Hyundai Electronics before joining LB Investment.

The underwriter applied the enterprise value (EV)/AUM comparison method and price-to-book ratio (PBR) comparison method to determine LB Investment's appropriate corporate valuation. Six domestic VCs listed on the stock market?Aju IB Investment, SBI Investment, SV Investment, Mirae Asset Venture Investment, Daol Investment, and Daesung Startup Investment?were selected as comparable companies. The average corporate value of these six companies was about 0.17 times their AUM, and the average PBR was 1.21 times.

Based on LB Investment's AUM and PBR, the estimated market capitalization was calculated at 198.2 billion KRW and 130.6 billion KRW, respectively. This is similar in scale to SBI Investment (market cap 204.2 billion KRW) and SV Investment (118.4 billion KRW). The average per-share valuation derived from the two methods was 7,080 KRW, and applying a discount rate of 28?38% led to the suggested offering price range.

The final offering price will be determined based on the success of the bookbuilding. However, the increase in the base interest rate last year and the difficulties faced by the venture investment industry are considered negative factors.

The number of large venture funds with a total raised amount exceeding 100 billion KRW increased from one in 2009 to 21 in 2021. However, due to last year's interest rate hikes and IPO market sluggishness, the number decreased to 17. The total raised amount grew from 1.0224 trillion KRW in 2018 to 3.2104 trillion KRW in 2021 but fell to 3.0097 trillion KRW last year. The number of domestic venture capital firms increased from 133 in 2018 to 229 as of September 2022.

LB Investment recorded operating revenue of 17.3 billion KRW and operating profit of 7.5 billion KRW on a cumulative basis through the third quarter of last year. In 2021, it posted operating revenue of 49.4 billion KRW and operating profit of 31.1 billion KRW.