[Future Unicorns Leaving Korea] ④ 'Arteriosclerosis' in KOSDAQ... Blocking the Path for Unicorns

Toss, Musinsa, and Other Leading Korean Unicorns Declare Plans for Nasdaq Listing
Valuations Favor Growth Potential Over Profitability, Lowering the Bar for IPOs
Quick Delisting of Zombie Companies Creates a Virtuous Cycle
KOSDAQ Presents the Opposite: Difficult Entry, Slow Exit
Even Technology-Based Listings Face Strict, Safety-Focused Reviews
"Fundamental Transformation Needed to Attract Unicorns"

Editor's NoteThere is a growing call for a major transformation in South Korea's venture ecosystem. Critics point out that the country's venture capital (VC) industry and stock market are failing to nurture future unicorns (unlisted startups valued at over 1 trillion won), resulting in a breakdown of the virtuous cycle. In reality, the domestic startup market has been on a downward trajectory since peaking in 2021. This phenomenon is due to startups with unicorn potential increasingly leaving the country in search of better opportunities abroad. As a result, South Korea's future growth prospects are at risk. Over the course of five articles, we will examine why Korean startups are leaving, the reasons behind this trend, and how large corporations and the government should respond.

Twenty-five. This is the number of Korean companies that have been listed on the US stock market from 1994 through last year. Of these, five companies entered the New York Stock Exchange (NYSE) and Nasdaq in the most recent four years (2021?2024). Considering that only two companies achieved this in the previous ten years (2011?2020), the trend of Korean companies listing in the US is on the rise.

The Korea Exchange established a "unicorn special listing rule" (with a minimum corporate value of 1 trillion won for the main board and 500 billion won for KOSDAQ) for high-growth potential unicorn candidates, but all domestic unicorn hopefuls are looking exclusively at Nasdaq. Currently, major Korean unicorns such as Viva Republica (Toss), Musinsa, and Yanolja have publicly stated their intentions to list on Nasdaq. Kurly, Danggeun Market, and Ohouse also at one point considered a Nasdaq listing.

Kwak Byungjoo, CEO of GNT Pharma, a domestic biotech company developing new drugs for brain disorders and currently preparing for an IPO with the goal of listing on Nasdaq within the year, explained, "We chose Nasdaq over KOSDAQ because it is easier to secure large-scale funding and receive a higher corporate valuation."

Nasdaq: "Just Bring Your Technology"

The reason unicorns born and raised in Korea are heading to the US one after another is because it is more advantageous from the founder's perspective. The US stock market places a premium on future growth potential. Even companies with low current revenue or operating losses can receive high valuations if they have strong technology or growth potential. For example, Coupang, which was listed on the NYSE in 2021, had accumulated losses of 4.55 trillion won at the time of listing, but was valued at around 50 trillion won as it was dubbed the "Amazon of Asia."

The listing threshold is also relatively low. Nasdaq is divided into three main markets (Global Select Market, Global Market, and Capital Market) based on company size and characteristics. Of these, the Capital Market, designed for small and early-stage growth companies, requires only a minimum market capitalization of $50 million (about 70 billion won) for listing. This is why startups, tech, and biotech companies with insufficient track records can pursue a Nasdaq listing. Webtoon Entertainment, the North American subsidiary of Naver Webtoon, also succeeded in going public on Nasdaq last June despite years of losses.

Looking at the revenue distribution (for the one-year period prior to listing) of companies that went public on major US markets (NYSE, Nasdaq, AMEX, etc.) last year, 56.9% had annual revenue under $100 million (about 140 billion won), accounting for more than half. Companies with revenue between $100 million and $1 billion made up 26.4%, while those with revenue over $1 billion accounted for just 16.7%.

While entry is easy, "zombie companies" are quickly delisted. On Nasdaq, if a company's share price remains below $1 for 30 consecutive days, it receives a warning, and if it fails to recover within 180 days, it is delisted. The intention is to direct more capital to strong, growing companies rather than underperforming or insolvent firms, thereby increasing capital efficiency. In 2023, a total of 796 companies were delisted from Nasdaq, more than five times the number of new listings (154) that year. The number of Nasdaq-listed companies has also declined for two consecutive years (2023?2024). Based on this, Nasdaq plays a key role in the growth of startups.

An official in the venture investment industry pointed out, "For various reasons, including funding, valuation, and market environment, the factors keeping startups in Korea are diminishing."

KOSDAQ's Technology Listing: "Bring Us Your Revenue"

In contrast, entry into KOSDAQ is much more difficult. There is a technology-based special listing system that allows companies with proven technology or growth potential to list even if they are unprofitable, but even this hurdle has been rising recently. According to the Korea Exchange, six companies withdrew their preliminary reviews for technology-based special listings in the first quarter of this year, two more than the same period last year.

Since its inception in 2005, the biotech venture sector, which had virtually "monopolized" the technology-based listing market for a decade, is now voicing growing dissatisfaction with KOSDAQ. A few months ago, when a new drug development company, widely recognized in the industry for its technology, withdrew its listing application, rumors circulated that "they wanted 10 billion won in revenue." With talk of the KOSDAQ investment channel for biotech ventures drying up, VCs have drastically reduced their investments in new drug development ventures. One biotech venture CEO said, "Thanks to the technology-based special listing, global biotech companies like Alteogen could emerge," adding, "There are many ventures with global-level technology, but the exchange seems to be conducting reviews too conservatively due to past bad cases."

In contrast, delisting is slow. Even if grounds for delisting arise, KOSDAQ allows up to two years for improvement. Including objection filings and review procedures, it can take several years for actual delisting. The retention of insolvent companies ties up significant capital in the market, hindering the virtuous cycle of investment.

In fact, a KONEX market was created, modeled directly after the Nasdaq system, allowing easy listing under the guidance of underwriters, but it has become virtually meaningless. Last year, only one company was newly listed on KONEX. The total number of listed companies was 121, down by 32 from 153 in 2018. Market capitalization also halved over the same period, from 6.2504 trillion won to 3.1038 trillion won.

This is because no company achieved significant growth in the years following KONEX's launch. In the market, there were frequent criticisms that "underwriters rushed to list companies without properly screening them." As investors left, startups began to avoid KONEX and only looked to KOSDAQ. Despite its flaws, there is a growing desire for the KOSDAQ market to become as vibrant as Nasdaq.

Lee Seokhoon, Senior Research Fellow at the Korea Capital Market Institute, emphasized, "The main reasons KOSDAQ is being shunned by unicorn companies are undervaluation and low institutional investor participation," adding, "To become a market that attracts companies, a fundamental transformation of the market structure is needed, not just minor tweaks to listing requirements."