As of the end of the first half of this year, there were approximately 86 domestic corporate venture capital firms (CVC) established and held by companies to invest in alignment with their business strategies. CVC’s share of the total venture investment amount stands at 22%, and the government has a policy to raise it to 30% or more by 2027.
On Oct. 19, the Ministry of SMEs and Startups, the Fair Trade Commission, and the Korea Venture Capital Association hosted the CVC Venture Investment Conference at the Novotel Ambassador in the Gangnam district of Seoul in collaboration with over 50 CVC firms including GS Ventures, CJ Investment, and Lotte Ventures.
CVC is distinct from traditional venture capital (VC) in that the corporation is the majority shareholder. While traditional VCs primarily aim for financial gains through investments, CVCs pursue both financial and strategic benefits, including business expansion, exploring external resources, and venturing into new markets, given their connection to the parent company.
With the amendment to the Fair Trade Act in December 2021, general holding companies gained the ability to hold CVCs with strong financial characteristics under certain conditions. This development has led to increased attention towards CVCs. The purpose of the legal amendment was to promote large corporations’ active venture investments. However, there were concerns that this could undermine the principle of separating financial and industrial capital. As of June, there were 12 CVCs affiliated with general holding companies, such as GS Ventures and POSCO Capital, and several other companies are also in the process of establishing CVCs.
The Ministry of SMEs and Startups presented statistics on the current state of domestic CVCs for the first time in the public sector during the conference. The ministry categorized startup investment firms and new technology-focused financial specialist companies that are non-financial corporate groups holding a stake of 30% or more and being the largest contributor of 30% or more of the funds as CVCs. While both startup investment firms and new technology-focused financial specialist companies have similarities in investing in venture companies, they differ in terms of the relevant ministry and capital requirements. Startup investment firms fall under the jurisdiction of the Ministry of SMEs and Startups, while new technology-focused financial specialist companies are regulated by the Financial Services Commission.
According to the analysis, there were 86 entities that qualified as CVCs in South Korea, consisting of 51 startup investment firms and an estimated 35 new technology-focused financial specialist companies. These entities collectively invested approximately 2.7 trillion won (US$1.99 billion) based on last year’s data. This represents around 22% of the total venture investment amount, which stands at 12.5 trillion won (US$9.2 billion). Startup investment firms accounted for 1.1 trillion won (U$809.72 million) in investments, while new technology-focused financial specialist companies invested around 1.6 trillion won (US$1.18 billion).
An analysis specifically focusing on startup investment firm CVCs under the jurisdiction of the Ministry of SMEs and Startups revealed that the number of such CVCs has increased from 20 in 2014 to 51 in the first half of this year. The corporate groups holding startup investment firm CVCs are composed of 11 large enterprises, 29 mid-sized enterprises, and 11 small and medium-sized enterprises. The total fund under management for these 51 entities averaged around 200.6 billion won (US$147.67 million). In 2014, there were 108 such CVCs with a total of around 2.3 trillion won (US$1.69 billion) in investments. At present, the number has grown to 373 with a total investment of approximately 10.2 trillion won (US$7.51 billion).
Lee Eun-cheong, the director of venture policy at the Ministry of SMEs and Startups, said, “There is a tendency to think that large corporations usually hold CVCs, but, in fact, mid-sized and small enterprises make up about 80% of them. It’s interesting that there are three CVCs operated by unicorn companies like Bithumb, a virtual asset exchange. Startups that have grown through investment are now actively engaging in venture capital investments themselves.”
The government has set a target to increase CVC share in domestic venture investments, currently at 22%, to over 30% by 2027. To this end, there are plans to consider regulatory improvements, such as allowing the external fundraising limit to be raised from the current 40% of the fund’s formation amount to 50%. However, this relaxation of regulations has drawn criticism as it appears to contradict the original intent of utilizing abundant corporate funds for venture investments.
On the same day, the “CVC Council” under the Korea Venture Capital Association was officially launched, serving as a platform for information exchange among CVCs, gathering industry opinions, and making policy recommendations.