A large number of Korean firms that failed once are suffering from a lack of investment due to an immature venture financing ecosystem. However, the number of such firms is on the rise based on the government’s efforts to give entrepreneurs a second chance.
One example is the Angel Investor Matching Fund, which was created by the government two years ago so that entrepreneurs trying again can better find the angel investors that they need. According to the Small & Medium Business Administration, only three firms attracted angel investment via the fund in 2013, and the number stood at three in 2014 and eight in the first half of this year. The total amount of investment during the period is estimated at only 1.1 billion won (US$937,574) or so, too. The Korea IT Fund led by the Ministry of Science, ICT & Future Planning is limited to approximately 1.5 billion won (US$1.3 million) in size right now. A project for private investment attraction was recently launched by the National IT Industry Promotion Agency, but the level of expectations is said to be very low.
Besides, 40 percent of such funds can be invested in non-retrying firms, and this rule has hindered businesses seeking to regain their footing from the funds. Furthermore, the lack of rules regarding such companies’ year of establishment is likely to cause investors to prefer companies with stable sales to those in the death valley, while the amount raised by the fund of funds as a liquidity provider dropped from 9 billion won (US$7.7 million) to zero between 2014 and this year, which means the retrying entrepreneurs are likely to see no more funds this year.
Under the circumstances, experts point out that the government should be more active in dealing with the market failure area. “Investment can be boosted if the government picks dedicated angel investors in advance and lets them act as screeners for the government’s fund for retrying firms,” said Dongguk University professor Lee Young-dal, adding, “Another option is to earmark 10 percent of that fund to set up an angel investment association.”