More than half of first-generation crowd funding platform providers closed down their business. Despite South Korean Government’s to plan to vitalize crowd funding industry, crowd funding platform providers are continuing to return their licenses back to the government. Its blueprint to promote businesses by raising funds from small investors has gone up in smoke after it was established three years ago. Industries believe that this phenomenon is due to side-effects of hasty institutionalization.
According to Financial Services Commission (FSC), a securities-based crowd funding platform provider called Yinc returned its license as an online small investment broker earlier this month. As a result, Wadiz and OpenTrade are the only ones that are left out of five crowd funding platform providers that were established in January of 2016.
“Although we are not closing our business, we decided to return our license after realizing that there is no more profitability by working as a crowd funding business.” said CEO Go Hoon of Yinc. “We are going to carry on our business through different types of investments where small investors can make profits.”
Crowd funding is a financing method that was started by five businesses such as Wadiz and OpenTrade back in January of 2016. Stock firms that are specialized for small and medium businesses also jumped into crowd funding business.
When crowd funding was established, South Korean Government institutionalized small financing window that was separated into securities-based, loan-based, and compensation-based financing. It introduced the system so that businesses that need funds to grow their businesses can easily raise funds through regular investors without having to submit registration of securities.
Including Shinhwa Wells Funding that had to return its license back to FSC shortly after it was established, YouCanStart and Yinc returned their licenses back to FSC.
“We can see that the fact that these businesses returned their licenses on their own indicates that there is a limit to growth of crowd funding business.” said a representative for the financial industry. “They realized that there would not be any more growth despite improvement in relevant systems.”
Although securities-based crowd funding market was established more than three years ago, it has yet to show any significant growth. South Korea’s crowd funding market is finally worth little bit more than $88 million (100 billion KRW) as of 2019. Wadiz, which is the top crowd funding platform provider, is responsible for about 80% of $88 million.
Most of stock firms that are specialized in small and medium businesses and are operating crowd funding platforms are starting to show less interest in crowd funding. Most of them are operating crowd funding platforms as they are major requirement to obtain a license.
On the other hand, value of private investment partnership that makes investments after gathering funds from individual investors was $175 million (198.3 billion KRW) at the end of last year. The value more than doubled compared to the value in 2016 ($63.8 million (72.5 billion KRW)). Despite the fact that private investment partnership is a type of a private fund raising, it has received spotlight as a financing method for promising private businesses due to government support such as tax benefit.
Recovery market is also not operating properly. KRX Startup Market (KSM) that was established by Korea Exchange (KRX) to collect funds from crowd funding businesses has been closed temporarily. Even businesses that have shown better trading performance are leaving KSM.
“I do not know how meaningful it is to criticize South Korean Government’s policies on crowd funding when we already closed down our crowd funding business.” said CEO Go. “Idea of crowd funding is based on promoting growth of a business by raising funds from small investors. However, we have to rethink about how much government’s policies on crowd funding is actually for crowd funding-related businesses.”
“Although FSC has finally decided to ease regulations related to crowd funding, the name ‘crowd funding’ actually lost its meaning due to P2P (Peer to Peer) loan, ICO (Initial Coin Offering), and illegal fund-raising business.” said a representative for the crowd funding industry. “As a result, there is no reason to utilize crowd funding platform anymore.”
Staff Reporter Ryu, Geunil | ryuryu@etnews.com