Asia Times: Korean online start-ups back in bloom


	June 5, 2001	atimes.com

The Koreas

Korean online start-ups back in bloom

SEOUL - Growing expectations of an economic recovery and a continued upward trend in the Seoul stock market are helping start-ups attract investors more easily via the internet.

Electronic initial public offerings (IPOs) are regaining popularity as a means to raise capital online. They had virtually disappeared since last summer, when the over-the-counter Kosdaq market collapsed and suspicions grew about the validity of high-tech start-ups. The resurgence of online IPOs recalls the so-called venture rush of 1999, when e-IPOs served as financially-liquid rocket fuel propelling investment-hungry start-ups, many of which ended up being duds.

Nine start-ups raised 2.8 billion won (US$2.1 million) in investment funds in April through online IPOs, a sharp increase from the 986 million won raised by four start-ups in January, according to statistics from the Financial Supervisory Service (FSS). Four start-ups raised 1.78 billion won in February, and 10 firms garnered 2.34 billion won in March, pushing the total raised in the first four months this year to 7.7 billion won.

As many as 19 start-ups filed intentions to proceed with online IPOs with the FSS in May, a drastic increase in internet IPO funding from April.

In a fresh marketing strategy, the film industry has successfully benchmarked internet IPOs over the past few months. Several filmmakers have raised hundreds of millions of won each to bankroll public relations for their films by giving netizens an opportunity to invest in their films. In one instance, Interpark Goodsdaq, which specializes in online fund-raising, wrapped up in a matter of hours a planned three-week operation to raise 100 million won to promote the film "Shocking Girl".

Buoyed by recent successes, Interpark Goodsdaq plans similar sessions for the films "Indian Summer" and "Prince & Princess". Meanwhile, Enter Fund, tied to the local portal Simmani, raised the same amount for the film "Friend" in just one minute after a March 12 IPO got under way. Enter Fund originally planned to continue the fund-raising until March 30, one day before the release of the film which attracted a record-breaking 7 million viewers as of late May.

Intz.Com, which introduced e-IPOs to the local film industry in November 1999, has provided investors in Foul King, Joint Security Area and several other big hits 100 percent capital gains on their initial investments.

Despite some industry-specific gains, the internet IPO market as a whole has not yet recovered the full strength exhibited in 1999 when internet-released shares made 10-fold gains over their face values after their IPOs.

Komo Engineering Co, a producer of small-sized thermo and hydroelectric power plants, had to withdraw its plan to raise 600 million won in late April after only 15 percent of its IPO stocks found buyers online. "We had to cancel the project because we thought the amount collected from the Internet IPO could not cover the budget needed to expand production facilities," a Komo Engineering spokesman said.

Komo Engineering's aborted IPO had share prices set at 15,000 won, three times their face value of 5,000 won.

The FSS meanwhile, cautioned investors about being too quick to snatch up stocks on internet IPOs. "Investors will have to carefully check company track records and financial statements to avoid falling victim to those using forged documentation to tap into the surging Internet IPO market," a FSS official said.

The FSS recently brought a case to the prosecution, charging a man, identified only by his family name Cho, with attracting 1.2 billion won from 566 investors by posting false business records online. Cho was accused of fabricating financial statements to show the company has 500 million won in paid-in capital, although the actual amount was 50 million won. And he put the company's annual sales at 9.5 billion won when it in fact sold nothing.

The FSS reported scores of similar cases over the past months involving Orum Tek, a producer of digital multimedia equipment, and Magsoftbank Co, an internet software and solution company. Most companies issuing IPO stocks online set fund-raising ceilings at less than 1 billion won to avoid inspections and other obligations set by the FSS, according to the financial watchdog.

Since 1999, only three out of the hundreds of start-ups which tapped the Internet for fundraising have succeeded in listing their stocks on the Kosdaq market, industry sources said, calling for would-be investors to think before they jump.

(Asia Pulse)

back to the top

©2001 Asia Times Online Co., Ltd.

Building B - 5th Floor, 102/1 Phra Arthit Road, Chanasangkhram, Bangkok 10200, Thailand