Jeongyookgak’s Rehabilitation Scrapped After Failed Sale, Putting approximately $108 Million in VC Investments at Risk — BigGo Finance

South Korean food-tech startup Jeongyookgak’s corporate rehabilitation proceedings have ultimately been terminated. The management sale that had been pursued since last year fell through, dashing hopes for normalization through rehabilitation. As a result, venture capital firms that invested in Jeongyookgak now face a red flag on recovering their ₩150 billion (approximately $108.4 million) in combined investments.

According to investment banking industry sources on the 24th, the Seoul Bankruptcy Court recently issued a decision to terminate rehabilitation proceedings for Jeongyookgak. The company had pursued M&A prior to approval of its rehabilitation plan after entering corporate rehabilitation proceedings last year, but failed to secure an acquirer.

Jeongyookgak had raised ₩108 billion (approximately $78.0 million) through redeemable convertible preferred shares (RCPS) and convertible preferred shares (CPS) by its Series D round in 2022. Cumulative investment including common stock is reported at approximately ₩150 billion (approximately $108.4 million). Major investors include Atinum Investment, Premier Partners, Capstone Partners, Stonebridge Ventures, KDB Bank, and NH Investment & Securities.

Follow-on funding also continued. In March 2024, NH Investment & Securities, Atinum Investment, and Capstone Partners invested an additional ₩10 billion (approximately $7.2 million). Shinhan Capital converted an existing ₩30 billion (approximately $21.7 million) bridge loan into a two-year acquisition financing facility.

Jeongyookgak’s ownership structure was split between CEO Kim Jae-yeon and multiple financial investors (FIs). Major shareholders included CEO Kim (16.34%), Atinum Investment (7.93%), and Capstone Partners (6.75%). Premier Partners was found to hold 9.9% through its “2020 Premier Scale-Up Investment Fund” and “2022 Premier Scale-Up Investment Fund.”

Prospects for VC Investment Recovery in Bankruptcy Proceedings

In bankruptcy proceedings, a bankruptcy trustee liquidates company assets and distributes proceeds to creditors according to statutory priority. Foundation claims such as wages and severance pay are processed first, followed by secured claims with separate priority rights and general bankruptcy claims. Only if assets remain after these distributions do shareholders receive residual property.

The RCPS and CPS held by VCs are equity securities with stock-like characteristics and therefore cannot receive priority repayment like ordinary loan claims. Particularly for companies like Jeongyookgak where liabilities exceed assets, there is little likelihood that property will remain for shareholders after creditors are repaid. Industry observers note that most of the VCs’ investments will likely be written off.

Note: Amounts raised are based on figures disclosed by Jeongyookgak or known to the industry.

Subsidiary Chorok Maul Charts Independent Course

The trajectory of Jeongyookgak’s subsidiary Chorok Maul is diverging. Chorok Maul is pursuing an independent turnaround as a creditor group comprising partner suppliers, franchise owners, and eco-friendly farms moves to acquire the company. Jeongyookgak had invested approximately ₩90 billion (approximately $65.0 million) to acquire Chorok Maul in 2022.

Observers note that if Jeongyookgak’s bankruptcy proceeds in earnest following the termination of rehabilitation proceedings, it could affect the Chorok Maul creditor group’s acquisition efforts. However, some view that since Chorok Maul is a separate legal entity from Jeongyookgak, it can pursue normalization independently of the bankruptcy process. If the Chorok Maul creditor group succeeds in its acquisition, the liquidation value of Jeongyookgak’s stake in Chorok Maul could potentially be incorporated into the bankruptcy estate.

The food-tech industry views Jeongyookgak’s collapse as a case study illustrating the intense competition in South Korea’s fresh food e-commerce market and the difficulty of achieving profitability. Despite large-scale investment from multiple VCs, the company was unable to overcome persistent losses.