In response to a chilling investment climate plaguing the startup ecosystem, the Korean Ministry of SMEs and Startups has embarked on an unprecedented initiative to infuse vitality and dynamism back into the venture investment landscape. In a bold move, the ministry has announced a substantial injection of KRW 910 billion ($684 million USD) into investment projects for the first quarter of the fiscal year, signaling a departure from traditional allocation strategies.
Vice Minister Oh Ki-woong unveiled this groundbreaking fund investment plan at the ‘Venture Investment Industry Meeting on Funds of Funds‘ held in Seoul on January 31. The plan encompasses the utilization of the entire KRW 910 billion ($684 million USD) earmarked for mother-of-funds investment, comprising a main budget of approximately KRW 454 billion ($341 million USD) supplemented by recovered resources totaling approximately KRW 456 billion ($307 million USD).
This allocation represents a notable 37% increase from the previous year’s investment figures. The Ministry of SMEs and Startups asserts that the move aims to swiftly revitalize the stagnant venture investment market.
Addressing the Urgent Need for Market Revitalization
Explaining the rationale behind the swift deployment of funds, Vice Minister Oh emphasized the imperative to rejuvenate the stagnating venture investment market. Recent trends reveal a disconcerting decline in venture investments over consecutive years, with figures plummeting from KRW 7.6802 trillion ($5.7 billion USD) in 2021 to KRW 5.3977 trillion ($4 billion USD) in 2023.
Moreover, the formation of new venture funds has witnessed a sharp downturn, indicating a shrinking capacity for new investments. The formation of new venture funds has significantly dwindled, with 1,198 cases in 2021, 902 cases in 2022, and 609 cases in 2023 (1st to 3rd quarters), along with a corresponding decrease in investment capacity.
Streamlining Fund Formation to Encourage Investor Participation
Vice Minister Oh stressed the importance of expedient fund formation, emphasizing that the main criterion in selecting a consignment management company (GP) is the speed at which a fund can be established. He said, “We are preparing various measures to ensure that the formation of a mother-principal fund can occur smooth”
Acknowledging the difficulties faced by fund managers amidst the current economic climate, the Ministry of SMEs and Startups has decided to waive penalties for managers who withdraw funds early from the formation process. This measure aims to alleviate restrictions placed on managers who fail to form a union and participate in investment projects within a six-month timeframe.
The meeting convened by Vice Minister Oh Ki-woong saw the participation of key industry stakeholders, including officials from the Ministry of SMEs and Startups, the Korea Venture Capital Association, and prominent CEOs from leading venture investment firms. This collaborative effort underscores a collective commitment to navigate and overcome the challenges posed by the investment cold wave.
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