South Korea’s Ministry of SMEs and Startups (MSS) has lined up a 1-trillion-won ($751 million) fund of funds to support venture capital investments in the country.
The Korean government’s recent initiative aims to spur over 2 trillion won ($1.5 billion) in fundraisings by local general partners and encourage venture capitalists to execute an investment surplus of approximately 11 trillion won ($8.2 billion) by the end of 2022, per a release.
South Korea’s first quarter of 2023 saw a significant drop in both the amount of venture funds raised and the performance of venture investments, with a decline of 78.6% and 60.3%, respectively, over the same period of 2022.
Despite the seemingly bleak figures for venture investments in the first quarter of 2023, the country recorded a 13-14% increase compared with the first quarter of 2019 and 2020, said Lee Young, Minister of Ministry of SMEs and Startups, in her opening remarks at the Venture Capital Forum in South Korea last week.
The trend is largely overshadowed by the unprecedented surge in venture capital investments in 2021-2022, which distorts dealmaking activities for 2023, she added.
Yoon Gun-Soo, Chairman of Korean Venture Capital Association, noted that the contraction in startup investments was due to the global economic headwinds rather than the lack of investment resources. To overcome the crisis in the startup ecosystem, the government must provide active support for companies with high-growth potential, particularly those in new growth industries. This includes driving early-stage investments and increasing funds for small venture capital firms, he suggested.
“As this crisis is a global phenomenon, and overcoming the crisis in a short time period is the key to enhancing economic competitiveness, the government and the private sector need to take this as an opportunity to strengthen the startup ecosystem and collaborate in making an all-out effort to invigorate the ecosystem,” said Lee, who echoed Yoon.
“The government will carefully examine the various opinions voiced by the industry at the forum and thoroughly consider them when developing and implementing venture and startup policies,” added Lee.
The MSS intends to enhance relevant laws, systems, and infrastructure to provide assistance to homegrown startups that are expanding overseas as well as develop policies to support foreign talent in launching businesses in Korea. This move is expected to bolster the country’s venture capital scene and promote innovation in the startup ecosystem.
The MSS and Financial Services Commission are set to announce a new plan for additional funds and regulations aimed at enhancing the financing environment for startups and boosting their competitiveness, in addition to the 80-trillion-won fund supply plan for SMEs that is currently in the works.