[Inside Chodong] Furiosa and Homeplus: The Bitter and Strange Capital Market

South Korea is the 12th largest economy in the world, thanks to its solid manufacturing industry. However, its financial sector, especially its capital market capabilities, lag behind. In the past two months, FuriosaAI and Homeplus have exposed the raw reality of the capital market.

It is bitter.

FuriosaAI develops AI semiconductors for data centers. Along with Rebellion, it is one of the two major players domestically. Meta, the company behind Facebook and Instagram, scoured the global AI semiconductor fabless market and ultimately chose Furiosa. After much deliberation, Furiosa rejected Meta’s sweet offer to buy the company for 1.2 trillion won.

If Meta had acquired Furiosa, half of South Korea’s AI semiconductor technology and talent would have likely gone to the United States. Just imagining that is bitter. A venture capital (VC) representative who invested in Furiosa lamented, “Proper chip production requires hundreds of billions of won. It takes gathering ten domestic VCs to barely invest 200 billion won. The same situation could repeat in the future.”

It is strange.

Private equity fund (PEF) MBK Partners, which spent about 7 trillion won to acquire Homeplus, abruptly placed it under court receivership (corporate rehabilitation process) last month. There was controversy over the high acquisition price even when it was purchased in 2015. Since then, the PEF industry has seen numerous cases of trillion-won mergers and acquisitions (M&A) focusing on companies with attractive EBITDA (earnings before interest, taxes, depreciation, and amortization).

I will not add another finger to the many criticisms directed at MBK. However, it is simply strange that on one side of the capital market, companies that do little to enhance national competitiveness are easily traded for trillions of won, while on the other side, it is difficult to invest even 200 billion won in companies that greatly contribute to nurturing national technology and talent.

Understanding that the nature of the money invested in VCs and PEFs is different makes this strangeness less puzzling.

VCs are inherently venture capital. They invest minority stakes in companies with no sales at all. Even if nine out of ten companies in a fund fail, one big success is enough. Most VCs that secure ‘mother funds’ from Korea Venture Investment Corp. and Korea Growth Investment Corp. raise additional funds from other investors to form new funds. Since the mother funds themselves are relatively small, VC funds rarely exceed 300 to 500 billion won. This is why Furiosa cannot raise 1 trillion won domestically.

On the other hand, institutionally specialized PEFs like MBK receive thousands of billions of won from pension funds such as the National Pension Service and Government Employees Pension Service. Due to the nature of pension funds, they must demand stable returns. This is why PEFs invest in companies with steady cash flow (companies with attractive EBITDA). As pension funds grow larger, trillion-won fund formations have become common, naturally leading to more trillion-won M&As.

Seen this way, the cases of Furiosa and Homeplus make sense. But it still feels bitter.

If the VCs, which have been around domestically for nearly 40 years, had grown bigger instead of spinning off into PEFs. If the mother funds, which have shrunk to a few hundred billion won in recent years, had grown to over a trillion won. If the KOSDAQ market had been more active, expanding investments in Series B or later unicorn companies and the secondary market. If policy finance and pension funds had paid more attention to nurturing the VC industry instead of PEFs. If PEFs had shown more interest in big tech investments with creative valuation logic instead of the outdated ‘EBITDA play.’

And if there had been meticulous capital market policies to consider all these “if only” scenarios in the mid to long term.