Wadiz, a South Korean crowdfunding platform, is grappling with severe financial difficulties, marked by consistent losses, casting significant doubt on its future viability.
Despite its attempts to expand its business, consistent losses have resulted in its auditor, EY Hanyoung, raising concerns about the company’s ability to stay afloat. The accounting firm has pointed out significant uncertainties regarding the platform’s future.
Wadiz, one of Korea’s top crowdfunding service operating companies, was founded in May 2012 by Shin Hye-sung. Shin had previously worked at Dongbu Securities and Korea Development Bank (KDB).
However, in 2021, Wadiz faced a major setback when it lost an investment of 80 billion won ($58 million) from Lotte Holdings. This loss was due to the accumulation of deficits in its core business and the failure of new businesses to improve profitability.
According to the Financial Supervisory Service report on Apr. 23, it was found that Wadiz had a total capital of negative $9.8 million at the end of last year, indicating a state of complete capital impairment. Capital impairment occurs when a company’s total capital is less than its capital stock, and complete capital impairment is when the total capital is negative.
Wadiz’s total capital decreased from $19.9 million in 2021 to $6.6 million in 2022, and it turned negative last year. Wadiz’s total assets amount to $35.8 million, and its liabilities are $45.7 million, with liabilities significantly exceeding assets.
According to Wadiz’s income statement, the company earned $28.7 million in revenue last year but also suffered an operating loss of $12.5 million. In addition, Wadiz reported a deficit of $24.5 million in 2022.
Despite facing a complete capital impairment with negative total capital in 2019-2020, Wadiz’s financial situation improved in 2021 when Lotte Holdings participated in a pre-IPO equity investment in the company.
Lotte Holdings became Wadiz’s second-largest shareholder by acquiring approximately $35.2 million worth of new Wadiz shares and $22.7 million worth of existing shares, totaling an investment of $58 million and securing more than 15% of the equity. Thanks to Lotte Holdings’ rights issue, Wadiz’s current assets increased from $21.7 million in 2020 to over $50.7 million in 2021.
Lotte Holdings had the intention of promoting a positive partnership by selling the products of its subsidiaries through Wadiz. Unfortunately, due to a significant deficit last year, Wadiz’s current assets were reduced to approximately $25.3 million.
Additionally, the current liabilities, which are the debts that are expected to be paid within a year, reached around $34.8 million. As a result, Wadiz’s financial situation has reverted back to its pre-investment conditions.
The market views Wadiz’s crowdfunding business structure as challenging in terms of profitability. Wadiz primarily operates as a platform business that collects funding brokerage fees, but its structure makes it difficult to achieve higher profitability due to costs such as personnel expenses and operational costs.
In 2021, Wadiz launched a store service to expand into the distribution business. However, the market response to this new service has been minimal. The entry into the distribution business increased the cost of goods sold and despite rising salaries and advertising expenses, sales revenue has not been able to surpass these costs, resulting in continued deficits.
