Support Shifts to Firms in Growth Phase
The amount of fresh investments in venture companies has recently been on the rise, but they still account for less than 0.2 percent of Korea’s gross domestic product (GDP), which is even lower than that of China.
According to a report on domestic venture financing issued by the Korea Institute of Finance (KIF) on Nov. 4, the amount of new venture investments stood at 1.6 trillion won (US$1.43 billion) in the first half of this year, accounting for 0.19 percent of the nation’s GDP.
The figure was lower than 0.37 percent in the United States and 0.28 percent in China, both in 2016.
The proportion of investments in early-stage (less than three years from foundation) venture companies is on the decrease. The ratio of investments in such startups to the total fell from 37 percent in 2016 to 30 percent in the first half of this year.
On the other hand, the proportion of investments in venture companies in operation for three to seven years since establishment expanded from 29 percent in 2016 to 36 percent in the first half of this year.
This is largely due to a shift in the focus of the Korean government’s venture support policy from companies in the startup phase to those in the growth stage.
The government has announced to raise 10 trillion won (US$8.94 billion) worth of the Innovation Venture Fund by 2020 and inject 3.7 trillion won (US$3.31 billion) of it through the Korea Fund of Funds.
Out of the 3.7 trillion won (US$3.31 billion), it is planning to spend 2.6 trillion won (US$2.33 billion) on the Growth Support Fund. The figure is much higher than 1.1 trillion won (US$983.9 million) set aside for the Innovation Startup Fund. This reflects the policy goal of creating 800 venture firms with sales of more than 100 billion won (US$89.45 million) by 2022 and achieving economic growth through the cultivation of fast-growing venture companies.
However, Lee Ji-un, a senior analyst at the KIF, pointed out that the government needs to strengthen its role in the angel investment sector that invests in early-stage venture companies. Angel investments have a long investment period and are usually not withdrawn until initial public offerings (IPOs). This is why it is the sector that can barely attract private funds.