[Chodong's View] Let Bubbles Form in KOSDAQ

The Tech-Based IPO System Fails to Identify True Deep Tech
Easier Listing Needed to Foster Venture Capital
Faster and Broader Delisting of 'Zombie' Listed Companies Required
KOSDAQ Boom Expected to Create a Virtuous Cycle for Venture Investment

Earlier this year, Jensen Huang, CEO of Nvidia, stated that it would take 20 years for practical quantum computers to emerge. Immediately after, related stocks such as IonQ plummeted on the US Nasdaq market. However, he recently changed his stance, expressing a positive outlook by saying that quantum computing is reaching an inflection point. This is a representative example that even the world’s top experts in deep tech can make judgment errors when stepping just slightly outside their own field.

The KOSDAQ market has a special track for technology-based IPOs, allowing companies with excellent technology but operating at a loss to go public. If a company passes the evaluation by specialized institutes that assess technological capabilities, it becomes eligible for a preliminary listing review by the Korea Exchange. Alteogen (2014) and Rainbow Robotics (2021) are examples of companies that successfully entered KOSDAQ through this track.

In recent years, criticism of the technology-based IPO track has been growing. The main criticism is that “companies that experts believe should pass fail, and those that should fail pass instead.” At first glance, this seems obvious. This is because deep tech is a field where even the judgments of top experts like Jensen Huang can change within less than a year. For this reason, Nasdaq does not require preconditions such as a ‘technological evaluation’ even for loss-making companies.

After several issues arose with technology-based IPO companies, the Korea Exchange raised the bar for loss-making deep tech companies seeking to go public. This is one of the reasons why the Korean venture investment market, unlike the US where M&A and secondary deals are active, has experienced a downturn over the past three years. The path for investment exit has been blocked. As a result, venture capitalists (VCs) have avoided the ‘adventure’ of investing in deep tech companies and have instead focused only on companies that generate immediate revenue.

With the new administration, expectations for a bullish stock market are rising. Some predict that an ‘IT bubble’ similar to that of the late 1990s and early 2000s will reappear in the KOSDAQ market. Even if a bubble occurs, its benefits should go entirely to deep tech companies. Just as Naver and Daum (now Kakao) protected Korea’s IT sovereignty even after the IT bubble burst, it is necessary to foster companies that can win in global deep tech competition. Naturally, the listing threshold for deep tech companies should be lowered further.

Instead, companies that fail to deliver results even after five years of being listed should be delisted more quickly and in greater numbers. Earlier this year, the Financial Services Commission announced a policy to gradually raise the revenue and market capitalization standards for delisting by 2029, aiming to expel more ‘zombie’ listed companies. In response, some KOSDAQ-listed companies have started seeking ‘detours,’ such as bio companies acquiring bakeries. Follow-up measures are needed, such as raising the market capitalization threshold that exempts companies from the revenue standard, to prevent such loopholes.

In capitalism, it is inevitable for bubbles to form (Boom) and burst (Burst). There is no need to fear bubbles. However, it is important to strengthen disclosure systems and toughen penalties for insider trading and market manipulation to protect well-intentioned investors from harm. If the KOSDAQ market becomes more active, VC investment in deep tech companies will increase exponentially. If, after the bubble bursts, more deep tech companies with global competitiveness survive, that alone will be a sufficient gain for the country’s future.