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December 18, 2023
1 min read

Korea’s Venture Pivot: Government Reforms and Fund Freeze Intersect

  • South Korea’s venture capital scene is at a crossroads, with government-led initiatives attempting to invigorate the sector even as it experiences a freeze in fundraising due to soaring interest rates.
  • The Ministry of SMEs and Startups has unveiled amendments to the ‘Enforcement Decree of the Venture Investment Promotion Act’, taking steps such as establishing investment purpose companies for venture funds, and introducing a conditional investment loan system aimed at providing startups with financial safety until they secure follow-up investment.
  • However, the venture capital industry is facing headwinds, with industry reports stating that the number of large venture funds has dropped sharply and that institutional investors such as pension funds have drastically reduced their investment in venture funds.
  • In light of these contrasting developments, the future of the venture landscape in South Korea remains uncertain.

In a dynamic juxtaposition of government initiatives and market challenges, South Korea’s venture capital (VC) scene is going through a pivotal moment. The Ministry of SMEs and Startups is making bold strides to reshape the investment landscape, spearheaded by Minister Lee Young. The Ministry has unveiled a comprehensive set of amendments through the ‘Enforcement Decree of the Venture Investment Promotion Act’. The move is aimed at fostering a larger benefit in the coming years.

The revised bill encompasses key measures, such as conditional investment loans, the establishment of investment purpose companies for venture funds, and conditional equity conversion agreements. These changes are strategically crafted to usher in a new era of private investment inflow into the growth funds of startups and venture companies. Notably, the initiation of a conditional investment loan system is expected to provide startups with a financial safety net until they secure follow-up investment.

But despite these strides made by the government, the VC industry is grappling with significant issues. Fundraising in the VC sector has effectively stalled, primarily as a result of rising interest rates. The number of large venture funds – a key indicator of a thriving VC market – has fallen precipitously. Institutional investors such as pension funds and mutual aid associations have also dramatically reduced their venture investments.

These dual narratives of government-led reforms versus market challenges have created an atmosphere of uncertainty in the venture landscape in South Korea. Industry participants are closely watching how these initiatives will shape the trajectory of venture capital in the coming years.

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