Korea to launch Nasdaq IT fund

The government teams up with local and US private equity players to help get Korean high-tech companies listed on Nasdaq.

The Korean Ministry of Information and Communication (MIC) will today (Wednesday) announce its partners in a $50 million offshore venture fund designed to list Korean high-tech companies on Nasdaq, or otherwise integrate them into the Silicon Valley landscape, according to people bidding for the deal.

Korean financiers and MIC officials engineered the idea based on the Israeli model. Thanks in part to a concerted effort between the public and private spheres, there are now 123 Israeli companies listed on Nasdaq, most of them high-tech oriented. There is only one Korean name on Nasdaq, the dotcom Thrunet.

Furthermore, the government's previous efforts to place Korean companies in the thick of things in America's tech centres have failed. For example, MIC helped finance a science park in the Silicon Valley area for Korean companies to use û missing the point that the market externalities of the Valley have little to do with 'hardware' or that governments can simply build a park and create economic magic.

"The Korean market is too small for many Korean IT companies," says one VC head in Seoul. "The only way for them to grow is to expand in the US."

Now the MIC is taking a market-based approach, and instead of directing how funds should be invested to promote high-tech companies, is merely providing seed money and letting capitalists handle the rest.

In the first closing of the fund, MIC will chip in $30 million, and let its private-sector partners fund an additional $20 million. Bidders say the fund is likely to have a second financing to raise its final tally to $100 million, making it the largest Korean venture capital fund.

Today MIC will choose its local partner, with rivals including a consortium between STIC Venture Capital and KDB Capital, another between KTB Network and Korea IT, and a bid by Korea Venture.

In addition, all of these players are in talks with US venture capitalists, including Accel and JPMorgan û talks which industry players hope will crystalize once MIC makes its preferred local players clear. MIC is insisting the private-sector side of the new fund includes an American player.

"Having a US company is critical for success," explains one local VC chief. "Korea's IT industry has good potential but lacks a US network or US market know-how. If there is an American general partner, we have a good chance of achieving listings on Nasdaq, or exit through M&A by selling the company to a good US IT name."

The final consortium will also make larger investments than is typical in Korea. Most domestic VC deal sizes are $1-2 million, but this one is envisaged to take stakes as large as $10 million û aiming at existing businesses, many of which may already by listed on Kosdaq or at other existing VC investments. MIC stipulates however that financing can only go to new share offerings, which will also help add liquidity to Kosdaq.