Korean startups opt for Konex, loans for survival during IPO winter

(Courtesy of Getty Images)

South Korea’s anemic initial public offering market has forced the country’s startups to become more creative in raising funds as they shift toward debt or hybrid financing to secure working capital.

According to Korea’s sole stock market operator, Korea Exchange (KRX) on Wednesday, 10 VC-funded startups applied for listing on the Konex market in November and December last year, raising the total number of Konex listings in 2022 to 14 from seven in the prior year. As of end-May, five more small businesses joined the Konex.

Konex is the acronym for the Korea New Exchange, a minor Korean securities bourse exclusively for small- and medium-sized enterprises (SMEs) and startups that are not eligible to join the bigger tech and bio-heavy Kosdaq market.

(Graphics by Sunny Park)

The daily trading volume of the Konex market is so small that it is almost impossible to cash out on a Konex-listed firm through stock trading on the exchange.

Still, a growing number of Korean startups and venture capitalists with their money in startup funds expiring have chosen Konex as an alternative to the bigger Kosdaq market to stay afloat amid the prolonged fund drought in the IPO market.


Many biotech and medical device startups have opted for the Konex market after failing to get approval for Kosdaq listing.

Curachem Co. went public on the Konex on May 18, after initially planning to debut on the Kosdaq.

(Graphics by Sunny Park)

Stomach cancer diagnostic kit maker Novomics Co. also debuted on the Konex in April, while Aiobio Co., Anymedi Inc., KaiBioTech Co. and Ai The Nurti Gene Co. joined the Konex late last year.

They are expected to move to the bigger Kosdaq market later because a Konex-listed firm generating operating profit on sales of more than 10 billion won ($7.6 million) and a market capitalization of over 30 billion won is eligible for an express transfer from the Konex to the Kosdaq.

Redeemable convertible preference shares (RCPS) issued by unlisted firms are marked as liabilities in accounting but Konex-listed firms can record RCPS as capital.


Startups struggling with fundraising through common share or RCPS sales are seeking to raise capital through venture debt and convertible bond (CB) issuance.

Korean fashion e-commerce platform operator Ably raised 50 billion won in March via venture debt, a popular capital-raising instrument in the US.

(Courtesy of Ably)
(Courtesy of Ably)

Venture debt comes with warrant coverage that gives the holder the option to purchase the company’s stock at a specified price within a specific period.

Following a recent amendment to Korea’s venture capital investment law, venture debt is now available at banks and other types of lenders at low interest rates in exchange for the right to own minority equity.

CB is another popular funding option for startups grappling with the current fund drought. This bond-stock hybrid financing is preferred by small businesses as it frees a company from share dilution concerns while its bondholders can convert bonds to equity shares should the company perform well.

Korean beef e-commerce platform operator Sir.Loin Inc. last month issued 5 billion won worth of CB, while cash-strapped agtech company Green Labs Co. raised 50 billion won through CB sales in March.

According to the Korea Venture Capital Association, CB accounted for 7.3% of total new VC investments as of the first quarter of 2023 versus 5.5% for whole-2022.

Startups also seek to raise funds via a simple agreement for future equity (SAFE). This financing agreement grants the investor the right to receive shares at some future time, based on the company’s valuation at that point, often after a series A funding round.

It is a form of convertible security, not debt. Because it does not require calculation of the company’s valuation before funding, it is a speedy means to finance.

(Courtesy of Sir.Loin)
(Courtesy of Sir.Loin)

Early-stage startup investor Fast Ventures, based in Seoul, often invests in startups graduating from acceleration programs via SAFEs.


An increasing number of VCs and startups are also relying on credit guarantee services to get bank loans.

The number of startups backed by the VC matching special credit guarantee program of the Korea Technology Finance Corp. (KIBO) jumped to 62 in 2022 from 49 in 2021.

Total guaranteed financing value added up to 105.9 billion won from 80.6 billion won over the same period and already reached 64.2 billion won for 42 startups as of end-May.

Funding backed by the Korea Credit Guarantee Fund’s (KCGF) credit guarantees also increased to 615.4 billion won in 2022 from 575.4 billion won. As of end-April, it hit 185.6 billion won.

Startups rely on KIBO and KCGF’s credit guarantees, which help them borrow money at low interest rates, said Gowid CEO Kim Hang-ki, adding that it is not easy for a startup valued at 2 trillion won to borrow money from commercial banks even in the 10% rate range.

Write to Lan Heo and Jong-Woo Kim at
Sookyung Seo edited this article.


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