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Investment

lastmod 2025-08-26created 2025-08-262 edits

Investment (German: Investition, English: investment, investing, French: investissement) means putting in time or providing capital in order to obtain a particular gain. Investment is allocating money (or sometimes resources such as time) in expectation of future benefit.

In finance, the benefit from an investment is called a return. The return may consist of capital gain (capital investment) or investment income (investment income), including dividends, interest, rental income, and so on. The projected economic return is the appropriately discounted value of future returns. The return consists of the actual capital gain (or loss) or income over a given period.

Investment generally means acquiring an asset. If an asset is bought at a price that makes it worth investing in, it can usually generate income by being sold at a higher price as its value rises.

In general, investors expect higher returns from riskier investments. Financial assets range from low-risk, low-return investments such as safe government bonds to high-risk, high-return ones such as emerging-market stock investments.

Investors, especially beginners, are advised to adopt a general investment strategy and a diversified portfolio, because diversified investment has the statistical effect of lowering overall risk.

Investment rounds

Investment rounds divide investment into stages according to a startup's growth, and the sequence of seed, Series A, B, and C is called the investment round (Investment round). In investment news you will see somewhat unfamiliar terms such as seed (Seed) and Series A (Series A); these indicate the current stage of fundraising.

Investment rounds generally go seed stage (Seed money) → Series A → Series B → Series C. If fundraising continues until investors exit (exit) through an IPO or M&A, further rounds such as Series D, E, and F are added.

So what do investors get after investing in a startup? At each stage, an investor pays cash when investing in the startup and mostly buys preferred shares. Preferred shares take priority over common shares for profits, interest and dividends, and distribution of residual assets, but carry no voting rights at the general shareholders' meeting. This can be seen as a way to protect the founders' management control. In other words, investors assert their rights by buying preferred shares in the company they invest in.

Seed

As the name suggests, seed investment refers to investment made at the very earliest stage of a company or right after its founding. It is mostly based on the capabilities of the team seeking investment or the potential of its idea. Angel investors, crowdfunding, and accelerators usually take part, and government startup support programs also count as seed investment.

The amount is usually between 500 million and 1 billion won; since this is the stage where investors are least likely to recover their money, the amounts are not large.

  • Investment based on the potential of the business idea
  • Angel investors, crowdfunding, and accelerators take part
  • Usually between 500 million and 1 billion won
  • Note: the stage between seed and Series A, raising 300 to 500 million won, is classified as the Pre-A (Pre-A) stage

Series A

Series A can be seen as the stage where the company's product or service has been validated by the market and the company prepares to enter the market in earnest. From the investor's point of view, it means the product or service of the target company has passed market-fit validation and the company has a convincing idea. The main investors are venture capital firms, accelerators, and financial institutions, and venture capital often joins in earnest at this stage

Because Series A comes just before market entry, investment decisions are based on the revenue model, growth potential, and so on, and the size is usually between 1 and 5 billion won.

  • Stage of preparing for full market entry after market validation
  • Investors are mainly venture capital, accelerators, and financial institutions
  • Size between 1 billion and 5 billion won

Series B

Next, Series B is often raised when the company's product or service has launched successfully and entered a stable phase, and the startup wants to expand its business and grow its market share. To do this, it often pours large amounts of money into hiring and marketing.

Investors are mainly venture capital firms and financial institutions, and the size is about 5 to 10 billion won. Discussions about when investments can be recovered sometimes take place at this point.

  • Fundraising for business expansion and growing market share
  • Investors are mainly venture capital and financial institutions
  • Size about 5 to 10 billion
  • Often raised for large-scale hiring, aggressive marketing, R&D, and so on

Series C

If Series C were summed up in one keyword, it would be 'scale-up'. For the startup, this is the stage of increasing the market share of its products or services and accelerating growth.

It is mainly the stage of raising funds for full-scale growth: taking market-proven products or services overseas, considering expansion into related businesses, or an IPO (initial public offering) for listing or mergers and acquisitions (M&A).

The size is between 10 and 50 billion won, and the main investors are large venture capital firms, investment banks, private equity funds, and the like.

  • Stage of increasing market share and accelerating scale-up
  • Stage of considering overseas expansion, expansion into related businesses, and an IPO (initial public offering) for listing or mergers and acquisitions (M&A)
  • Main investors are large venture capital firms, investment banks, private equity funds, etc.

Note that not every startup goes through an IPO (initial public offering) or a merger or acquisition (M&A) after Series C; some startups keep raising money in Series D, E, F, and so on after the Series C round.

Is the goal of investment an exit?

Why do people invest in startups? As everyone knows, the main goal of a company is to make a profit. So how is profit made through investment? As explained above, startups mostly raise funds from venture capital firms, angel investors, and so on. In return for their investment, the investors acquire shares in the startup

As long as the startup keeps existing without going under, the only way for investors to recover their money is to transfer their shares. Investors recovering their money by selling shares in the startup they invested in is called an exit (Exit).

You may now wonder where and how an exit (Exit) happens. The commonly known methods are IPO and M&A.

IPO (Initial Public Offering)

The first exit method is the IPO (Initial Public Offering). As many people know, it is also called going public. Registering shares officially on a stock market where shares are officially traded (e.g. KOSDAQ, NASDAQ) through the process of listing is called an IPO. However, this requires disclosing the company's finances, management status, and so on in full as required by law and passing a review.

If the company succeeds in its IPO, investors can exit by selling the shares they hold on markets such as KOSDAQ or NASDAQ.

However, the IPO process is quite demanding and complex. Companies often spend several years preparing with the help of securities firms and law firms. For this reason, there are not many cases of a successful exit through an IPO.

A representative example is the overseas company Airbnb. In December 2020, Airbnb, the home-sharing company that symbolizes new travel trends, listed on the New York Stock Exchange, and its valuation exceeded 100 billion dollars (about 108.85 trillion won). As a result, the investors holding Airbnb shares gained the right to sell their highly valued shares on the market and were able to make large profits.

M&A (Mergers&Acquisitions)

The second method is M&A (Mergers&Acquisitions), the acquisition or merger of a company. Put simply, it means buying a company. Other companies attempt M&A based on a startup's growth potential in order to strengthen their market dominance. In this process, the investors of the startup being acquired can sell their shares to the acquiring company, recover their money, and exit.

A representative example is the 2019 acquisition of Baemin (Woowa Brothers) by Germany's Delivery Hero for 4 billion dollars (about 4.75 trillion won), through which Baemin's investors, including Bon Angels, Naver, Altos Ventures, and Goldman Sachs, made huge profits by exiting. The early investor Bon Angels is also famous for investing 300 million won in 2011 and earning a return of nearly 1,000 times.

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