Conservative Money Fairies
New investments in venture startups plunged by one third in the first half of the year. The number of startups that received big investments plummeted.
According to startup investment information platform TheVC, startups and SMEs received 2.819 trillion won (US$2.160 billion) in investment in the first half of 2023, a 72 percent plunge from 9.9994 trillion won in the first half of 2022. In terms of the number of investments, 547 new investments were made in the first half of 2023, down by more than half from 1,177 in the same period of 2022.
Even early-stage startups that were less affected in the first half of 2022 when the market was at the beginning of the current deep slump in venture startup investments are struggling to raise funds in 2023. In the first half of 2023, 443 were investments in the seed to Series A investment period, down 52 percent from the same period of 2022. The amount invested per deal also dropped from 2.93 billion won to 2.52 billion won. Mid- and late-stage investments saw an even bigger decline. Post-Series B investments dropped a whopping 76 percent from the first half of 2022.
Analysts say that no big deal was made in the Korean venture capital market. There were 74 investment rounds of 10 billion won or more in the first half of the year, down nearly 70 percent from 235 in the first half of 2022. They accounted for only 13 percent of all the investments, down from 20 percent in the first half of 2022.
No big deal is a worldwide trend. According to global market research firm CB Insights, the number of mega-rounds (investments of US$100 million or more) in the first quarter was down 80 percent from the same period of 2022.
This trend has been making investors more selective about startups, specifically investment has shrank for two different categories: platform companies that became less profitable while increasing size due to cutthroat competition, and the biotech sector with relatively larger risk. In the first half of 2022, the amount of investments in the bio-medical sector totaled 2.2179 trillion won, but in 2023 it fell by 80 percent to 439.5 billion won. The number of investments also fell by 70 percent. The amount of investments in the e-commerce sector also contracted by nearly 70 percent.
On the other hand, startups with manufacturing technology in the material, parts, and equipment sectors have fared well in the slump. The number of investments in semiconductors, displays, and 3D printers dropped by 38 percent to 29, but the amount of investments was about 68.45 billion won, which was 15 percent higher than in the first half of 2022. “The demand for artificial intelligence (AI) semiconductors grew, making the outlook for these sectors brighter. Therefore, the positive outlook positively affected investments in startups in these sectors,” said a VC industry insider.
Moreover, large investments were made in startups related to films, TV shows, and music, which are riding a K-content craze. In the first half of 2023, 25.29 billion won flowed into the sector, compared to 33.39 billion won in the first half of 2022.
Venture capital companies are also turning their eyes to the secondary fund market for interim returns. Secondary funds invest by buying shares from existing venture funds. This method has the advantage of buying stakes in startups at low prices. In addition, the government has decided to triple the size of secondary funds from 500 billion won to 1.5 trillion won. Funds of funds revived the secondary fund investment business after a decade.
Investors expect sentiment to gradually recover beginning from the second half of this year. Recently, new investments have been on the rise, showing a sign of an improvement. Monthly new investments have been on the uptick, with 82 in April, 87 in May, and 105 in June.
“Korea is expected to recover faster than other countries because it has strong competitive sectors such as semiconductors and is recognized as an alternative to a risk-ridden China,” said Park Ki-ho, CEO of LB Investment.