Jul 31, 2024

SoftBank-backed Tridge in trouble amid Korean startup doom The more startups close down their businesses, the more venture capitalists go out of their business By 5 MINUTES AGO (CapturedгҖҖfromгҖҖTridgeгҖҖwebsite) Tridge Co., South KoreaвҖҷs first agricultural product and food trading platform operator invested by SoftBank Group Corp., was in financial trouble as local startups continued to suffer the prolonged funding squeeze , while increasing risks to the venture capital industry. Tridge, which had been valued at 3.6 trillion won ($2.6 billion) last year, reported impaired capital -- a balance sheet condition whereВ a company's total capital becomes less than the par value of its capitalВ stock -- at the end of 2023 after logging 115.5 billion won in operating losses in the previous three straight years, according to industry sources on Wednesday. The startup faced difficulties raising fresh funds while slashing jobs and changing its business purpose to the data service. Tridge is not the only company in trouble as more local startups closed their businesses amid the prolonged funding squeeze. INCREASING BANKRUPTCIES In the first half, 68 startups, which raised money from investors, closed down their businesses, according to The VC, a venture capital industry tracker. That compared with a year earlier and the first half of 2022 when 54 startups and 35 companies went out of their businesses, respectively. вҖңBankruptcies of not only companies without competitiveness but also firms considered healthy are increasing,вҖқ said a venture capital industry source. Yellow Mobile, South KoreaвҖҷs No. 2 unicorn вҖ“ a private company with a corporate value of $1 billion or more вҖ“ closed down its business in April. The startup, which attracted a total of 260 billion won from investors, struggled due to excessive expansions. Poolus, the countryвҖҷs largest ride-sharing platform operator, discontinued its business in March. The startup with more than 1 million users raised a combined 22 billion won from various companies such as Naver Corp. but failed to maintain its business. LinkShops, a fashion wholesale platform, went out of its business although it secured 16.5 billion won from global venture capitalists such as Altos Ventures Management Inc. and Forest Partners Inc. Startups lowered their valuations to attract fresh funding for survival. According to the Ministry of SMEs and Startups, 20.7% of companies, which raised money from investors in the first quarter for the second straight year, saw declines in their corporate values. Early-stage investments by venture capitalists fell 6.6% to 572.7 billion won in the January-March period from a year earlier. (CourtesyгҖҖofгҖҖGettyгҖҖImages) EXPANDING DOOM INTO VENTURE CAPITAL INDUSTRY The downfall of the startup industry is also hitting the local venture capital sector with small and medium-sized investors on the verge of survival. Six venture capitalists including the South Korean unit of IDG Capital closed down their businesses in the first half. Four venture capitalists went out of their businesses last year. The increasing shutdown indicates the venture capitalist industry is facing more troubles as financial institutions usually spend more on investments in the first half, industry sources said. вҖңThe industry is likely to suffer a series of closures in the second half,вҖқ said another venture capital sector source. Five venture capitalists have already been warned by financial regulators as their capital was impaired hurting their management soundness. Venture capitalists are trying to minimize losses from failed startups with some attempting to sell stakes in healthy companies with those of troubled ones. вҖңFew venture capitalists do not have troubled startups in their portfolios,вҖқ said a major investment companyвҖҷs head. вҖңMany venture capitalists cannot afford to pay attention to new investments as they are trying to minimize losses from those troubled companies.вҖқ FEWER IPOS The venture capital industry struggled to exit from the investments in startups as fewer of them succeeded in listings. According to the Korea Venture Capital Association, 26 companies invested by venture capitalists were listed on the countryвҖҷs tech-heavy Kosdaq in the first half, accounting for 51% of the total initial public offerings of 51 firms including those through mergers with special purpose acquisition companies (SPACs). Venture capitalist-backs startup IPOs on the junior bourse made up 63.9% in 2020, 62% in 2021, 59.8% in 2022 and 54.4% in 2023. Twenty-seven companies voluntarily withdrew their IPO plans or failed to get approval as the KRX took tougher stances on startup listings. Overvaluations on startups also put brakes on their listings, industry sources said. Their valuations were excessively estimated in 2020-2021 when the global market enjoyed abundant liquidity, according to the sources. Venture capitalists focused on potential sales growth at that time as the increasing sales despite losses could raise startup valuations. That raised target valuations for returns from the investments, making startups harder to seek IPOs, industry sources said. The listings of smaller startups became more difficult after the IPOs of unicorns such as Kurly Inc., the leading domestic food delivery platform , failed due to valuation issues, they added. KurlyвҖҷsгҖҖlogisticsгҖҖcenterгҖҖinгҖҖSeoulгҖҖ(FileгҖҖphotoгҖҖbyгҖҖYonhap) PRIVATE-EQUITY SECONDARY MARKET More venture capitalists looked for the private-equity secondary market -- the buying and selling of pre-existing investor commitments toВ private equityВ and otherВ alternative investmentВ funds вҖ“ as it became harder to exit with profits from startupsвҖҷ listings. The industry established 552.6 billion won in new 25 private-equity secondaries, which aim to make profits through buying the stakes in the existing venture funds, in the first half, similar to 554.9 billion won in 26 secondaries last year. Those secondaries became larger with a total of some exceeding 100 billion won. вҖңFortunately, the secondaries are becoming popular amid the tighter IPO market,вҖқ said the other venture capitalist source. Write to Seok-Cheol Choi, Jeong-Cheol Bae, Eun-Yi Ko and Joo-Wan Kim at dolsoi@hankyung.com В Jongwoo Cheon edited this article. 4 Min read 3 Min read 5 Min read 1 Min read