Angel Investors
The Financial Services Commission released a plan to facilitate the financing of small and venture firms on July 19. The idea is to boost their self-sustainability by means of private sector-led investment.
The Korean government has invested a large amount of public funds for a couple of years in order to enrich the domestic startup ecosystem. As a result, the size of investment in venture firms and the number of startups have greatly increased. However, some experts have pointed out that there is still a long way to go when it comes to the self-sufficiency of the ecosystem and the revitalization of venture capital in more diverse industrial fields.
Venture investors are in favor of the plan, but say that the government needs to focus more on the qualitative growth of investment funds for those firms. According to the commission, the Small and Medium Enterprise Establishment Investment Association and the Korea Venture Fund raised 80 million won (US$69,049) for them in 2012, but the amount skyrocketed to 2.5 trillion won (US$2.16 billion) last year. The amount of new venture investment increased from 1.2 trillion won (US$1.0 billion) to 1.6 trillion won (US$1.4 billion) during the same period, and the government’s new investment in the sector has amounted to 1.3 trillion won (US$1.1 billion) since 2013. This has resulted in an increase in the number of newly-established venture firms from 74,162 to 84,697 between 2012 and 2014.
Nevertheless, the domestic venture investment ecosystem still relies heavily on government funds. The government accounted for 27 percent of financing to that end in 2007, and the percentage rose to 40.3 percent last year, but investment by private-sector entities continued to decrease during the period.
“Venture capital firms are concentrating on profitability, and less-promising firms are failing to benefit from their funds,” said an industry insider, adding, “This matter should be addressed for the government to achieve its goal.” According to the Korea Venture Capital Association, Korean venture capital firms recorded an average rate of return of 24.4 percent in the ICT manufacturing sector last year, easily eclipsed by those pertaining to games (281.9 percent) and ICT services (123.6 percent).
It is also pointed out that the government has failed to raise the rate of survival of investees due to its concentration on the supply of funds. As of 2013, the ratio of startups that remained in business for three years reached 57.6 percent in the United States, 55.4 percent in Israel, and just 41.0 percent in Korea.