Investors favoring venture startups

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By Anna J. Park

Local markets' ample liquidity now seems to be flowing into venture companies that haven't listed yet. Market watchers say strengthening government regulations on real estate markets has pushed the money flow into promising business ventures.

According to Korea Business Angels Association ― an association of individual investors that mainly invest money into venture companies in their early stages ― Monday, the number of individual investment associations formed this year has exceeded 1,170 so far, which is more than all of last year's 980.

In general, individual investment associations are groups of retail investors of less than 49 people that jointly pool capital resources of at least 100 million won ($89,000) each, to invest in burgeoning stages of venture businesses.

The total amount of investments made by these associations has expanded from last year; this year the aggregated sum of the associations' money stands at 781.3 billion won, much greater than the 126 billion won invested by the associations for all of last year. When compared to 2016, the number of individual investment associations has increased by 5.5 times, and the amount of the invested money has grown by 6.9 times.

Government tax benefits given to these venture investment groups have also played a part in their growth. Money invested into startup companies through these investment associations are exempt from taxes up to 30 million won; profits made by selling stocks of these companies after their listing later in the future are also exempt from taxes.

Market watchers say retail investors are now targeting venture businesses in their infant stages, rather than eyeing pre-IPO investments.

“Lately, retail investors are more and more targeting to invest in fast-growing businesses early on, as they realized they can always make a lucrative exit at various funding rounds,” a market insider wishing to remain anonymous explained.

“Actually this kind of investment into unlisted-yet-promising companies can make the biggest profits out of investments, as a successful exit in each funding round could yield profits of tens of times at least.”

He added that from now on, various types of venture investment, ranging from small-scale crowdfunding to large-scale investment into early rounds of venture businesses, will take center stage of capitalists' attention.

However, market watchers warn retail investors to heed caution in their investment into venture companies, as not all startups end up receiving successful funding in later rounds. They stress to always pay attention to the possibility that asymmetric information could harm retail investor groups.