Venture Capital Market
Although South Korea is considered a country with advanced venture capital, it is pointed out that the supply of venture capital to start-ups is insufficient compared to Korea’s market size. Accordingly, it is said that a virtuous cycle system of venture capital should be established according to the stages of a company’s growth.
"As Korea is a country in which its venture capital market developed via government-led growth policies, its development is still slow," said Kim Jong-min, head of funds and pensions at the Korea Capital Market Institute in a seminar on the roles of finance for innovation growth held at the Korea Financial Investment Association Building in Yeoido, Seoul on November 6.
Venture capital refers to entities that supply funds to start-ups such as accelerators, crowdfunding, angel investment, venture capital (VC) in addition to the government.
The proportion of the size of Korea’s venture capital market in Korea's gross domestic product (GDP) is 0.80% similar to 0.81% (Luxembourg) and 0.75% (Canada). Only eight countries recorded over 0.5%. The eight were Sweden, the US, the UK, Luxembourg, Korea, Canada, the Netherlands and China.
However, compared to this market size, insufficient venture capital has been supplied to start-up companies in Korea. "The government’s support and equity investment have high proportions of Korea's investment in the early stages of start-ups," Kim said. "The size of the accelerator market is estimated at only 0.1 to 0.4 percent of the total venture capital market."
Actually, 0.1% of venture start-ups raised funds by way of VC and angel investment while the government injected funds into 36.9% via policy-based support funds and 23.3% received funds via general financing. This means that high percentages were recorded by the government’s policy finance and guarantee and loan methods.
On the other hand, the proportions of angel investment and VC venture capital in GDP accounted for 20.0% to 40.0% in European countries such as Germany, Finland, Denmark, Belgium, Austria, Ireland and Spain which had small venture capital markets compared to their GDP.
“Also in Korea, the venture capital market pertaining to the early stages of start-ups is growing, led by the government such as securities-type crowdfunding and accelerator institutionalization," Kim said. “However, a decent number of funds are supplied as government subsidies rather than as venture capital. The size of private investment is estimated to be around one third to one fifth of the government’s support."
"There is a limit to private investors’ voluntary enhancement of roles and creation of an ecosystem now that the start-up-related market was created within the government’s institutional framework," Kim explained. "It is desirable to give support by using the capabilities of private venture capital rather than direct support."