The Small and Medium Business Administration (SMBA) of South Korea announced on February 13 that it would raise a fund of funds of 735 billion won (US$625 million) this year, up 21.5% from a year earlier.
520 billion won (US$442 million) is scheduled to be borne by the SMBA while the Ministry of Culture, Sports & Tourism, the Korea Intellectual Property Office, the Ministry of Science, ICT & Future Planning and the Ministry of Education invest 153 billion won (US$130 million), 30 billion won (US$26 million), 20 billion won (US$17 million) and 12 billion won (US$10 million), respectively.
Based on the fund of funds, the SMBA is going to raise various types of venture funds worth at least 1.4 trillion (US$1.2 billion) this year, including those reflecting stages of corporate growth, those for assisting in regional companies and those for female entrepreneurs. At least 80% of the total amount is to be invested in funds for startups, global funds and those for companies in their early stage of growth so that investment-centered startup ecosystems can be enriched and venture firms’ global business can be facilitated.
Specifically, 220 billion won (US$187 million) is invested for the creation of startup funds worth 366 billion won (US$311 million), which are to take the form of funds for startups led by professional engineers, college professors, those with advanced degrees and the like and those led by young entrepreneurs. 206 billion won (US$175 million) is invested for funds for startups’ and venture firms’ overseas business and business globalization worth 550 billion won (US$467 million) in total. 50 billion won (US$43 million) has been earmarked for secondary funds and M&A funds and an investment recovery fund of 333 billion won (US$283 million) is to be raised based on investment from the private sector. The funds for regional companies and female entrepreneurs are to have a size of 48 billion won (US$41 million).
Various incentives have been prepared for the fund of funds so that more investors in the private sector can be interested in venture investment. For instance, the minimum rate of return at which venture fund managers can get incentives is lowered from 5% to 3% so that venture capitals’ expected return can be raised and more aggressive investment can be made.
“We are planning to reach 3.5 trillion won (US$3.0 billion) in terms of the size of newly raised venture funds and 2.3 trillion won (US$2.0 billion) in new venture investment this year by making use of the fund of funds,” said Joo Young-sup, head of the SMBA, adding, “The venture boom in South Korea will continue and investment in startup ecosystems will expand based on these financial resources.”