Corporate Ventures
Twelve corporate venture capital (CVC) firms have been established over a period of one and a half years after the government allowed holding companies to hold corporate venture capital (CVC). These CVCs have invested more than 200 billion won (US$154 million) in Korean venture startups.
According to an analysis of CVC firms affiliated with general holding companies in 2023 released by the Korea Fair Trade Commission (FKTC) on June 21, all 12 of them, including ones associated with POSCO Technology Investment, GS Ventures, and Dongwon Technology Investment, were established just in the past year and a half.
A CVC firm is a venture capital firm with a corporation as a majority shareholder. General holding companies were previously not allowed to establish or own CVC firms, which are financial companies, under the principle of the separation of financial companies and non-financial companies, but a revision of the Fair Trade Act in December 2021 allowed general holding companies to do so on a limited basis.
Of the 12 CVC firms, eight were newly established. One CVC firm, CJ Investment, was moved to its holding company system.
Since their establishment or conversion, these CVC firms have made 171 new investments worth 211.8 billion won in 130 companies. In terms of investment methods, 24.3 billion won (11.5 percent) were direct investments through unique accounts and 187.5 billion won (88.5 percent) indirect investments through investment associations. “Given that CVC firms are in the early stages of their establishment and operations, the scale of venture investment will gradually expand in the future,” the KFTC said.
The CVC firms made 73.8 percent of their new investments in startups seven years old or younger. This explains the continuation of venture investment in young companies.
By industry, 24.4 percent of the investments were made in ICT services such as artificial intelligence (AI) and the Internet of Things (IoT). This was followed by electricity, machinery, and equipment such as autonomous driving and electric vehicles (11.8 percent), chemicals and materials such as secondary batteries and new materials (11.2 percent), and distribution and services (10.2 percent).
Meanwhile, the KFTC assessed that restrictions on CVC firms do not act as a barrier to venture investment. The revised Fair Trade Act allows general holding companies to own CVC firms, but stipulates restrictions on their debt ratios (200 percent), internal investment ratios (60 percent), and overseas investment ratios (20 percent) to prevent adverse effects such as the concentration of economic power and profiteering.
According to the KFTC, these CVC firms’ debt-to-equity ratios averaged 12.0 percent, far below the upper limit of 200 percent. The average internal equity ratio of the eight newly established CVC firms stood at 56.4 percent. But the exclusion of three CVC firms that fell below the legal threshold (60 percent) pushed up their average internal equity ratio to 78.0 percent which exceeded the legal standard.
“CVC firms’ overseas investment ratio of 3.9 percent is significantly lower than the legal standard of 20 percent, so we do not believe that our overseas investment ratio restriction works as a practical constraint at the moment,” said Min Hye-young, head of the Business Group Management Division at the KFTC. “We will continue to examine whether the system can be improved so that venture investment can be revved up within the scope that it is not abused to expand control of members of owner families or help them seek their private interests.”