economy
Entered 2024.03.27 17:53 Modified 2024.03.27 17:53 Land A15
Rising bankruptcy conflict in startup industry
They say the possibility of recovery is ‘zero’.
A ‘zombie enterprise’ which only provides life support treatment is popular.Even if you are preparing for bankruptcy due to financial difficulties
Support sluggish due to opposition from investors
An entrepreneur becomes a credit crimeStartup M&A plunges 58%
Even ‘selling low’ is difficult.
“We need to prepare enterprise-specific training sessions.”
Graphic = Reporter Eunhyun Lee, CEO of a startup that laid off all employees last year due to management difficulties. I decided it would be difficult to continue the business and looked into bankruptcy procedures. However, one of the eight investment companies strongly opposed bankruptcy, putting it in a position where it could do nothing. Mr. And in a situation where he has to pay tens of millions of logs earned every month.
B, who is in his 30s and founded a new company four years ago, held on trying to save the company until the end, but his debt increased and he went bankrupt. Because I had bad credit for five years, I was almost kicked out of the startup industry. Not to mention taking on the challenge of starting a new business, they are labeled as ‘failures’ and find it difficult to participate in social activities.
○ Startups that can’t even go bankrupt
According to the industry on the 27th, as the number of startups experiencing management difficulties during the cold investment season is increasing rapidly, conflicts over closure and bankruptcy are happening everywhere. The most typical example is a case where some investment companies oppose a business in a situation where it is deemed difficult to maintain the business and where bankruptcy is inevitable. Venture capital (VCs), which are management companies (GPs) whose investment performance is important, cannot easily agree to bankruptcy because they are concerned about investors (LPs). The structure inevitably leads to the production of a mass of ‘zombie enterprises’ which only maintain the name of the company without any business capabilities.
One startup is delaying the bankruptcy process one by one because it could not get permission from one investment company even after getting permission for bankruptcy from all seven investment companies. An investment industry official said, “Not only the company but also the rest of the investment companies are frustrated because the investment company says that even if it goes bankrupt, it cannot agree to bankruptcy,” and he added, “If you agree to bankruptcy, one of your portfolios will be lost and it will be recorded as a confirmed loss, so you have to look at the LPs to make a decision. “He hesitates,” he said. Some investment firms threaten startups by threatening to file criminal charges if they go bankrupt without permission.
There are also cases where a founder closes his business without notifying investors or secretly sells the company to someone else and disappears. Entrepreneurs who were unable to choose to close their business at the right time and ended up holding on may have a lot of personal debt and bad credit. Choi Cheol-min, representative attorney of Choi & Lee Law Firm, which founded the first VC in the law firm industry, said, “In the past, startups were liquidated, but there were almost no bankruptcies, but in the past. year, the number of start-up bankruptcies has increased significantly, and various conflicts arise in this process. He said.
○ M&A is also tight… There is no escape route
During the cold weather, new businesses devise an exit strategy by lowering their prices significantly to attract investment or selling their companies to other companies. The problem is that neither is easy due to the nature of the Korean enterprise market. One VC reviewer said, “There are quite a few companies that will survive if money is injected, but it’s not easy to receive follow-on investment,” adding, “If you reduce the corporate value of compared to the previous investment, one or two of the current investors will definitely be against it.” If new shares are issued at a lower price, existing investors’ shares will be diluted without any particular benefit.
The startup mergers and acquisitions (M&A) market has also frozen. A startup that was considered a next-generation unicorn company (an unlisted company with a corporate value of more than 1 trillion won) was negotiating a sale with a mid-sized company, but it ultimately fell through. During the negotiation, the corporate value, which was worth hundreds of billions of won, was greatly reduced, but the acquiring company asked for a lower price. Last year, there were 53 initial M&A cases, a sharp decrease of 57.9% compared to the previous year (126 cases). There have been some recession-like M&As, such as Class 101, an online classroom company, acquiring Studio Bible, which was experiencing financial difficulties, but these cases are rare. As big tech companies like Kakao almost stopped M&A due to criticism that they were ‘octopus’, the exit route for small start-ups disappeared.
Kim Seong-hoon, representative attorney of Mission, a law firm specializing in startups, said, “If you can’t receive investment and sell, you’ll end up in a state where you can’t recover.” “There are many cases where it even poses risks,” he said.
○ “Need a restart agreement model”
New businesses often grow in size through hundreds of millions of policy money earned in the early stages of their business. If a business collapses without an opportunity to turn around or restart business, the opportunity cost at a national level ultimately increases. This is why voices are calling for institutional improvements to ensure a ‘beautiful exit’.
Silicon Valley in the United States and Singapore have an established system where investment companies have decision-making authority proportional to the amount of shares they own and resolve conflicts over major decisions such as business closures. The culture is different from Korea, where all investment companies include a clause on the right to consent to business closure when writing an investment contract. Attorney Choi said, “The United States has a short restart and reinvestment cycle, but Korea is much more conservative than this,” and added, “If the company’s representative has run the business faithfully, it should not be subject to punishment a major bankruptcy even if it does not receive the consent of all the investors.”
Some argue that a restart model should be established where investment companies postpone the exercise of existing rights and give new opportunities when entrepreneurs try again with a new business. Attorney Kim said, “There is a need for policy financial institutions like the Korea Credit Guarantee Fund to establish a specialized exercise system for new businesses.” Park Jeong-eun, director of Startup Alliance, said, “In Korea, startups rarely disclose their management difficulties to the surface, so they must open up the situation and receive help when needed.” Abroad, services that help liquidate start-ups are attracting attention.
Sunset, Simple Close, and Carta in the US help companies in difficult times to dispose of their assets and get through the closing process quickly.
Reporter Go Eun-i koko@hankyung.com
#credit #delinquent #30s.. #Tears #startup #CEO
