Managing Director at GNTech Venture Capital

Taehun Kim

Vast majority of VCs value startups based on comparative analysis, the most reliable valuation method but always fail to guess when they exit. Peer Group comparison is mostly done and the numbers mostly come from the Korean Exchange, called KOSDAQ. Which means recent performance of the stock market is highly relevant to judge whether or not to invest in a startup. Problem is that this reference is breaking recently in the Korea startup market which making investors much difficult to make investments.

The Korea economy experienced many dramatic changes such as increased listing of biotech companies at a high valuation, the fourth-generation industry revolution, abundance of money, COVID-19 pandemic. These factors in fact pushed the Korean markets valuation up the number they had never seen and startup valuations followed as expected. The most changes made after 2015 were listing of abundant biotech companies and valuation polarization of manufacturing companies and tech-based service platform business. In addition to the valuation, the IPO (Initial Public Offering) market was very active which made investors very generous to the startups.It is usual case that startups’ valuation doubles or triples each time they progress into series of funding, and IPO valuation is usually based upon the prior round value.

There are more than 100 VCs in Korea and keep increasing and other financial institution had already entered the startup investment markets. Recently, conglomerates and medium-sized companies are competing to establish CVCs, like a trend. In the market where everyone is player, competition is fierce and valuation is rising regardless of the stock market.Only Pre-IPO round that needs to be exited less than two years are affected somewhat.

With bunch of biotech companies IPO fail in 2021 and the market index down turn, number of biotech investments have slowed down, yet valuation is still at all time high and investors seems to have no choice but to accept it. I think it is time for investors to think about what is a right valuation, considering a startup’s growth stage, product life-cycle, market position, and other key performance index, and stop fighting to be friends with the startup’s management.

To startups :I think always high valuation is not always good valuation. A valuation of your company only good when it is justifiable; otherwise you may have trouble get funded upcoming rounds.

To investors new to the market :Ultra-high multiple exit is becoming more rare these days since the valuation gap, between exit market and startups, has became narrowed. Being profitable through startup investment will get tougher. Fortunately, there are still many good companies and managements with innovative ideas.If you are willing to be a partner and give them enough time, there are still chance to enjoy high multiples.