When Kim Hak-beom, CEO of Company K Partners (307930.KQ), talks about venture fund performance, he reaches for the language of wine vintages. Just as the weather in a harvest year shapes the quality of a wine, a fund's returns depend on market conditions when it is raised and when it puts money to work. Boom times appear to offer no shortage of opportunities, but the elevated valuations paid then can weigh on returns later. When investor sentiment freezes, by contrast, competition thins and valuations fall, opening chances to back promising companies.
After 27 years in venture investing and several turns of the market cycle, Kim has settled on a single conclusion: invest steadily. Timing has a large effect on returns, yet it is difficult to forecast how industries and capital markets will look several years out.
Indeed, a number of the best-performing funds Kim recalls were formed when markets were at their coldest. Among them are funds raised in 2002 and 2003, during the fallout from the dot-com collapse and the credit crunch that followed, and in 2009, just after the global financial crisis.
"Venture investing is not a business where you invest today and see results next year. You see the outcome several years later," Kim said. "A market that looked good at the time of investment can turn bad, and the reverse happens too, so what matters is consistently finding and backing good companies."
Seen through that lens, the area drawing his attention now is the secondary market, where investors buy stakes held by earlier backers. He expects demand to grow for selling down holdings and returning cash as funds raised during the 2019-2021 venture boom approach the end of their terms.
Large sums flowed into venture companies then on abundant liquidity, but a subsequent contraction in capital markets and delays in initial public offerings disrupted exit timetables, he said. "Funds created between 2019 and 2021 are now starting to reach maturity," Kim said. "More investors want cash rather than an extension, so there will be greater opportunity to pick and invest in existing shares of good companies."
Behind the rising demand for secondaries lies the narrow range of exit routes in South Korea's venture market. Kim noted that reliance on IPOs is high, while alternatives such as mergers and acquisitions remain underdeveloped.
"In the U.S., when a company needs technology or talent, it actively buys the company that has it, but in Korea it is not easy to align valuation expectations between buyers and investors," Kim said. "In the end, IPOs inevitably remain the main exit route for VCs here, which makes revitalizing the KOSDAQ market urgent."
He does not expect the weakness in exit markets to last, however. Money concentrated in large-cap stocks such as Samsung Electronics and SK hynix could shift toward the KOSDAQ, and because capital markets move constantly, like a living organism, sentiment can reverse at any time.
Company K is also taking a strategic approach to overseas investing aimed at maximizing efficiency. Rather than opening its own office in the U.S. for now, it commits capital to local venture funds and builds networks with their managers. The aim is to use those links to Silicon Valley to read early shifts in fast-moving industries such as artificial intelligence chips, robotics and aerospace.
"With AI chips, robotics or aerospace, it is hard to make sound investment decisions by looking only at domestic companies without knowing overseas markets," Kim said. "We have built relationships with managers who have invested locally for a long time, and we look selectively at the areas we need."
