[Exclusive] Startup fever is running high, but follow-on investment and exit markets need to grow

[Financial News] About one in 10 companies that received government youth startup funds have undergone debt adjustment. Although the government is expanding startup support through initiatives such as 'Everyone's Startup,' calls are growing for stronger post-startup growth support that leads to sales and investment attraction. The argument is that growth pathways, including follow-on investment and mergers and acquisitions (M&A), must be expanded so companies can survive and grow while investment proceeds can be recovered and reinvested.
 On the 20th, according to data submitted by the Korea SMEs and Startups Agency (KOSME) to the office of Kim Won-i, a lawmaker of the Democratic Party of Korea and a member of the National Assembly's Trade, Industry, Energy, SMEs, and Startups Committee, a review of 22,914 startups that received the Youth Startup Fund from 2015 through August this year found that 2,157 companies had undergone debt adjustment after failing to repay their loans on time.
 This means that one in 10 companies was in such poor financial condition that it could not even repay its loans. The amount written off as a loss after being deemed difficult to recover totaled 189.9 billion won. 
 Industry observers are calling for startup support to focus on scaling up, so that it leads not only to initial commercialization but also to sales, employment and investment. With the government expanding startup support and enthusiasm running high, experts say Korea needs to build an ecosystem in which startups not only increase in number but also survive, grow and attract further investment. 
 Domestic startup support has so far centered on initial commercialization funds and incubation programs. However, support is considered relatively insufficient at the stage when companies that have completed product or service validation receive large follow-on investments, enter overseas markets or pursue strategic M&A as they move into full-fledged growth. 
 Noh Min-seon, a research fellow at the Korea Small Business Institute (KOSBI), said, "Follow-up support and other linked support measures should be strengthened for startups that show potential," and emphasized, "Starting a business does not end with providing support once. Follow-up measures, including links to support programs for small and medium-sized enterprises, are needed." 
 Some also argue that the venture investment market must be expanded to connect policy funds with private investment. In particular, they say various exit channels beyond initial public offerings (IPOs) should be established to make it easier to recover investments. 
 Unlike the United States, where exit routes include acquisitions by large companies, South Korea relies heavily on IPOs. According to figures compiled by the Korea Venture Capital Association (KVCA) and industry sources, IPOs account for more than 80% of the exit methods used by domestic venture capital firms. This contrasts with advanced markets such as the Americas and Europe, where M&A and secondary transactions account for 70% to 80% or more of all exits. If exit markets are not sufficiently developed, existing investments cannot easily be recycled into new investments, inevitably constraining the flow of capital through the venture ecosystem. 
 As the venture investment market gradually recovers, experts say an active exit market is essential for increased investment to lead to reinvestment. Last year, domestic venture investment exceeded 13 trillion won, marking the second-highest total on record. 
 Choi Ji-young, president of the Korea Startup Forum, said, "The view that exit options such as a more active secondary market and M&A should be diversified has been around for a long time, but the issue has yet to be resolved," and added, "IPOs are bound to face limitations unless the KOSDAQ market grows." 
[email protected] Joo-mi Lee Reporter