South Korea-based venture capital firms are likely to see rankings shift once the glory days of lucrative exits in a liquidity-driven market are gone and they must prove their competence.
“The days of venture capital firms making easy money are gone. The investment volume has gone up and so has the risk," said Kim Jong-pil, the chief executive of KB Investment, in an interview with The Korea Economic Daily on June 7.
The weight on VC firms’ shoulders is getting heavier in line with the increasing ticket size, or investment amount. Instead of just investing in a couple of domestic companies, VCs will need to go the extra mile and change their perspectives towards the market, according to Kim.
"Only the VCs that have the discernment to identify market-leading companies will survive," said Kim.
Kim is a seasoned venture capitalist, equipped with years of experience at major VC firms such as KTB Network and Mirae Asset Venture Investment, alongside serving as the chief investment officer (CIO) at Korea Investment Partners.
In 2018, Kim became the first external investment principal to be appointed as chief executive at KB Investment. He has been leading the firm for four years, having served two consecutive terms and earning the title of being the longest-serving CEO in the history of KB Investment.
VC BOOM NOT JUST A BUBBLEAccording to Kim, critical situations such as social upheaval drove the birth of innovative companies in the past, but that's not the case anymore.
In particular, Kim noted the role of VC firms that provide funds to aid the growth of promising companies. And the companies that secure investments will steer the industry ecosystem and furthermore lead to wealth redistribution -- thereby creating a virtuous cycle, Kim said.
In regards to the recent VC boom, Kim said: “The market isn’t dumb."
A company’s valuation is based on the principle of supply and demand, and it shouldn’t be treated as a mere bubble, Kim said, pointing out that even Amazon and Google became what they are today because the market continued to bet on them.
“Even the investors' ravings over Coupang is because there's premium applied to the company’s growth,” said Kim, explaining that over time it will become clear which companies can produce output and those that can't.
Thanks to the development of technology infrastructure, CEO Kim expects the startup boom to continue for some time.
“Twenty years ago when the dot-com bubble happened, there weren't many business models that could be achieved via the internet technology," Kim said adding that now there's a groundwork prepared to commercialize business models that were only dreamt of in the past.
“Some companies' valuations may be adjusted if market liquidity shrinks, but the overall upward trend will remain strong," said Kim.
KB INVESTMENT EYES ASIA'S EMERGING MARKETS
KB Investment is focusing on Asia's emerging markets. In 2019, the VC firm
invested in Southeast Asia's leading ride-sharing service Grab, which is currently preparing for a Nasdaq listing.
The investment firm has also teamed up with global VCs, such as GGV Capital and Sequoia Capital
to invest in Indian startups. Also, KB Investment is collaborating with local VC firms in Indonesia and Malaysia to explore opportunities.
This year, KB Investment plans to invest over 300 billion won ($269 million), up by 30% compared to the previous year. The firm manages several large funds, including the 222 billion won KB Global Platform fund, with over 1.3 trillion won of assets under management.
“We are a hardy VC firm in terms of the number of investment officers or assets under management,” said Kim, adding that going forward KB Investment plans to discover early stage companies and become their reliable partner.
By Jong-woo Kim and Jung-hwan Hwang
jongwoo@hankyung.com
Danbee Lee edited this article.
