[K-INVESTORS]⑫ Jeon Hwa-seong, President of Korea AC Association, "The Year of AC Industrialization"

Jeon Hwa-sung, 4th President of Korea AC Association
Startup Consignment and Incubation Are the Essence of the AC Industry
Overseas Startups Can Also Be Listed on KOSDAQ

Editor's NoteThe Korean capital market is more turbulent than ever due to greed and selfishness. Manipulations and foul play are rampant. However, many investors have pioneered their own investment worlds and emerged as role models for individual investors, having endured numerous crises from the foreign exchange crisis, dot-com bubble, global financial crisis, to COVID-19. Through meetings with these investors, we aim to convey the value of money through war-like stories of the capital market, their philosophies, failures, and successes. Starting now, we share stories from various experts including the chief investment officers of domestic pension funds who have become global 'big players' in value investing and activism, leaders of private equity and asset management firms, and CEOs of financial companies.

Jeon Hwa-seong, President of the Korea AC Association. Photo by Jo Yong-jun jun21@

"Although last year’s investment market was a cold wave, the domestic accelerator (AC, startup incubator) industry saw an increase in both investment scale and number of deals. The fact that ACs and individuals invested their own capital despite difficult circumstances holds great social value."

This is what Jeon Hwa-seong, the newly appointed president of the Korea AC Association, said during a recent meeting with Asia Economy at Front1 in Mapo-gu, Seoul. Taking office as the 4th president of the AC Association on the 20th, he presented three major goals: ▲strengthening global presence ▲nurturing the domestic startup incubation market and expanding the AC mother fund ▲and merging with the Korea Early Stage Investment Association. We asked him about specific implementation plans and strategies as he aims to make this year the inaugural year of industrialization for the domestic AC industry.

"Increase Matching of Mother Fund and Private Investment Associations... Industrialization of AC is Industrial Development"

Jeon, a KAIST computer science graduate, founded a voice recognition company while he was a graduate student in 2000. In 2003, he established CNT Tech as a food ordering intermediary platform. In 2013, he expanded CNT Tech’s business into the AC field and has been executing 70 to 80 investments annually since 2020. Over the course of growing his portfolio to 380 companies, he has met more than 10,000 people. He has completed investment and exit processes for a total of 32 startups including T-Order, The Swing, The Mamma, and Cookat.

However, he still says, "There is a long way to go for ACs to establish themselves as an industry in Korea." He explained, "The government should commercialize the business by outsourcing ACs through mother fund capital. ACs can generate revenue and play a long-term role as a national industry." He also mentioned that the startup ecosystem can become more robust in the long term only if ACs function as an industry.

To this end, the association has proposed to the government to "strengthen mother fund matching for private investment associations." Jeon pointed out, "At least 1 billion KRW (about 10 million USD) must be gathered to enable the basic principle of investment, 'diversification.' However, the government’s first announcement regarding the mother fund this year structures VC and AC to compete for venture investments. This creates a 'rich get richer, poor get poorer' phenomenon, which is disadvantageous for many ACs."

He added, "Although 6% of the mother fund is allocated to the AC industry, most member company funds are private investment associations of 200 to 300 million KRW (about 2 to 3 million USD) in size." He emphasized, "If mother fund matching for private investment associations is not provided, diversification is difficult, which is the biggest problem." He continued, "The AC industry generally invests in 10 startups, and only 1 or 2 generate profits. Strengthening mother fund matching for private investment associations to gather at least 1 billion KRW will increase the probability of principal preservation." This is a call to support creating multiple small opportunities for diversification rather than simply increasing absolute investment amounts.

Jeon Hwa-seong, President of the Korea AC Association. Photo by Jo Yong-jun jun21@

Creating the first listing case for ACs is also a key task. Like the VC industry, which has relatively many listings and active investment attraction and exits, the AC industry needs to produce its 'first listing.' Jeon said, "The essence of AC is 'incubation'?nurturing baby-like startups and leading them to VC investment?and this should be viewed as an industry and market. While profits and investments are created together, most ACs find it difficult to receive tens of billions of KRW in investment at once. For stepwise growth, incubation and investment must form a virtuous cycle." He added, "ACs have low debt and stable cash flow, so their social value upon listing will be significant, and other listing cases will follow." He predicted, "About 20 ACs capable of listing will emerge within five years."

"Merger with Korea Early Stage Investment Association... Full-Scale Global Expansion"

The merger with the Korea Early Stage Investment Association is also progressing smoothly. The AC Association was launched in 2017 alongside the introduction of the domestic startup incubator certification, and later the Korea Early Stage Investment Association was established. Jeon said, "Since the AC industry itself is still in its infancy, there was a strong call for merging the two associations to speak with one voice for the industry." He added, "Since taking office, integration discussions between the two associations have rapidly advanced within a week. The merger is expected to be announced as early as the first half of this year."

He continued, "As the merged association’s president, I plan to stabilize the organization and then conduct a vote for the next president around October to November next year." He explained, "Both associations formed a task force (TF), and a draft regulation on voting rights for the merged association was completed last weekend. Specific details will be decided through the board of directors."

After the merger, the issuance of AC licenses will also be transferred from the government to the merged association. He said, "License issuance should be conducted carefully based on industry expertise. Post-issuance education, improvements, and advice during fund formation should also be effectively handled through the association."

To revitalize the market and reduce information gaps among ACs, they plan to create a 'secondary stock sale platform.' Jeon said, "Currently, secondary funds (funds acquiring shares held by venture funds, etc.) operate sporadically, and many transactions do not occur because buyers do not know where good stocks are." He added, "We plan to propose building a platform for secondary stock sales to the VC Association and enable data sharing between the two."

He also emphasized the importance of global expansion. Jeon said, "AC is a field with high potential for global expansion and success. Besides the U.S., Korea is one of the few countries with over 400 ACs. Korea also has many strengths as AC services are highly advanced." He added, "We will create an environment where domestic ACs can invest in new technologies and trends worldwide, and foreign companies that receive such investments can conduct IPOs on Korean stock markets such as KOSDAQ." He concluded, "We plan to maximize support from the Ministry of SMEs and Startups and the Ministry of Foreign Affairs at the association level."