[Reporter’s Notebook] Korea’s IPO overcorrection could choke its biotech future

The ghost of the "Fadu incident" from 2023 -- when the newly listed fabless chipmaker stunned investors with a sharp post-IPO earnings miss -- continues to haunt the Korean stock market in 2026. What began as market shock has hardened into regulatory rigor mortis, threatening the vitality of the biotech sector.

To prevent another catastrophe where retail investors are left holding the bag while early investors cash out, the Korea Exchange has implicitly, yet forcefully, encouraged financial investors to accept longer "voluntary" lock-up periods.

While the intention is to prevent an overhang -- a massive sell-off by early investors that crashes the stock price -- the execution is choking the liquidity that sustains the bio-venture ecosystem.

Investment banking insiders report that listing reviews now face significant hurdles unless major financial investors agree to lock up their shares for six months or even a year. This is a drastic shift from the traditional one-to-three-month period.

The logic seems sound on the surface. If investors believe in the company, why not hold the shares for six months or a year?

Regulators often point to the U.S., where the standard lock-up period is typically 180 days, arguing that Korean investors should demonstrate similar patience.

However, this comparison ignores a fundamental structural difference between the two markets. Applying American standards to the Korean venture ecosystem without addressing the underlying mechanics is not a solution but a suffocation.

In the U.S., the biotech ecosystem is supported by a deep pool of "patient capital." Specialized healthcare funds and institutional investors in Boston or San Francisco often hold positions for years, waiting for clinical trial results rather than a quick IPO pop.

Also, the U.S. market offers a robust exit route through mergers and acquisitions. If an IPO window closes, a promising biotech can be acquired by a global pharma giant, allowing investors to exit without dumping shares on the open market.

Korea, by contrast, lacks this safety valve. The Korean M&A market for biotech is virtually nonexistent compared to the U.S. For Korean venture capital firms (VCs), an IPO is often the only viable exit strategy.

This structural bottleneck forces VCs to be more time-sensitive.

Their funds typically have a shorter lifespan -- often seven to eight years -- compared to the longer horizons of their U.S. counterparts. When a Korean VC pushes for an exit within one to three months of listing, it is not necessarily out of greed but out of survival. They must return capital to their limited partners to raise the next fund.

A partner at a major VC in Yeouido acknowledged the dilemma.

"We fully understand the need to protect retail investors and restore trust in the market and we are willing to share the burden," the partner said. “However, demanding a six-month or one-year lock-up from financial investors effectively breaks Korea’s venture capital cycle as if we cannot exit, this makes a liquidity trap."

This creates a paradox where the measures designed to strengthen the market are actually weakening its future pipeline.

The biotech industry, by nature, requires long-term capital and carries high risk. By applying a one-size-fits-all safety standard derived from a manufacturing or IT mindset, regulators are inadvertently penalizing the sector's most promising players.

The consequences are becoming visible. "Blue-chip" biotech companies, those with solid clinical data and genuine technological potential, are beginning to look elsewhere like the U.S. Nasdaq market.

They are not fleeing because they have something to hide, but because the cost of proving their innocence in Korea has become prohibitively high.

Investor protection is paramount, and the anger of retail investors burned by the Fadu case is justified.

However, the solution is not to artificially lock the exit doors. It is to deepen the market. Korea needs policies that encourage M&A and diversify exit strategies so that an IPO is not the only finish line.

Until the Korean market can offer the same structural support as the U.S., demanding the same level of patience from investors is asking them to run a marathon while holding their breath. The cure for the market's anxiety should not be the suffocation of its most dynamic sector.