'Daemabulsa (大馬不死)' Has No Exit... The Unicorn Turned Zombie [Only the Last Place Survives K-Startup]②

Promising Unicorn Companies' IPOs Fail One After Another
'Last Resort' Unicorns Head to US Nasdaq
Korean Remaining Unicorns Turn into 'Zombies' for Investor Exit Purposes

"Daemabulsa (大馬不死). Investors need to recover their funds, so unicorns are stuck in a situation where they can neither live nor die."

As initial public offerings (IPOs) are repeatedly delayed, concerns are rising that startups may fall from 'unicorn' status to 'zombie' companies.

Kim Ho-min, CEO of SparkLabs, said, "Startups need to either go public (IPO) or undergo mergers and acquisitions (M&A) to provide investors with exit opportunities, but currently in Korea, both options are difficult. Investors will try to recover their funds by any means, but the founders who nurtured the unicorn companies may end up not receiving a single penny."

Last year, both Market Kurly and Oasis prepared for IPOs but withdrew due to declining corporate value or worsening sales and profits. Their corporate values were highly rated during the favorable market conditions amid COVID-19, but the recent market downturn changed that. Market Kurly was valued close to 4 trillion KRW in a pre-IPO equity investment at the end of 2021 but has since dropped to around 1 trillion KRW. Companies like Zigbang and Bucketplace also recorded losses in the hundreds of millions of KRW.

Choi Sung-jin, CEO of Korea Startup Forum, explained, "Market Kurly's IPO withdrawal was a valuation issue. Problems arise because the corporate value assessed by investors differs from the valuation in the stock market." He added, "In the cases of Coupang and Yanolja, they went to the New York Stock Exchange because they could not receive proper valuation if they listed on the domestic stock market. The domestic stock market itself has stagnated compared to other global exchanges, so the valuation of unicorn startups inevitably becomes harsher."

The listing on the US Nasdaq is interpreted as a 'last resort' for domestic unicorns as the Korean IPO market shrinks and funding channels dry up. With the Korea Exchange tightening listing reviews, there is criticism that the stock market has lost its function as a funding source for domestic ventures. Nasdaq has relatively few difficulties in listing as long as basic requirements are met. The number of Korean unicorn companies increased from 10 in 2020 to 18 in 2021 and 22 in 2022. However, as in the case of Fadoo, many of these unicorns are struggling with recent poor performance or failures in going public or M&A.

Experts advise that the government should shift its policy focus from merely 'nurturing unicorns' to establishing a virtuous cycle that connects startups, investors, and exits, which is ultimately the way to revive the startup ecosystem. They suggest improving regulations related to corporate venture capital (CVC) and lowering the IPO threshold. There is growing support for allowing companies with deficits to go public if they can prove future value, which would create a virtuous cycle of serial entrepreneurship.

Global companies like Amazon, Twitter, Qualcomm, and Groupon also went public while operating at a loss. The US pharmaceutical company Gilead took 15 years to emerge from the red after its founding in 1987. When it listed on Nasdaq in 1992, its stock price was only 20 to 30 cents per share, but now it stands at $63.56 with a market capitalization of $79.2 billion (about 109 trillion KRW).

Lee Young-min, professor at Seoul National University Business School, said, "Venture investment follows cycles, with periods focusing on technology or the future, and when the bubble bursts, more conservative, sales-centered investments occur. The market will balance itself through ups and downs, but policy support is needed to ensure that the passion and atmosphere for startups do not fade due to a conservative investment climate."