63% Say Raising Private Capital Has Also Become More Difficult
Despite a strong stock market, venture capital (VC) firms that supply funding to startups are struggling to secure capital.
The Korea Chamber of Commerce and Industry said on Nov. 20 that, according to its survey of 113 VC firms titled “Survey on Investment Difficulties and Policy Tasks,” 62.8 percent of responding firms said raising investment capital over the past year has become more difficult than before. In particular, 71.7 percent said recovering investments has become more difficult, which is analyzed as reflecting the slump in the initial public offering (IPO) and merger and acquisition (M&A) markets.
The difficulty in securing capital has increased VC firms’ reliance on policy finance. Over the past two years, 75.2 percent of VC firms received policy finance contributions from institutions such as the Fund of Funds, Growth Finance, and Korea Development Bank. However, 91.8 percent of these firms said they “struggled to match private capital.” Even when policy funds contribute up to 60 percent, the remaining private capital that VC firms must secure is proving difficult to raise, creating a structural bottleneck that delays fund formation.
VCs unanimously said that normalizing the exit market is essential to revitalize investment. Of responding firms, 69 percent cited improvements to the technology special listing system, followed by revitalizing secondary funds with 68.1 percent. The technology special listing system has been criticized for lacking disclosed evaluation standards and clear review indicators, reducing predictability.
Additionally, 61.6 percent said industrial capital and financial capital should be allowed to jointly participate as general partners (GPs). If the current regulation that blocks general holding companies from GP participation is lifted, private investment capital could expand by utilizing holding companies’ capital strength and understanding of industrial operations.
There were also many calls for expanded tax benefits and increased policy fund contributions. Strengthening tax support for venture investment with 55.8 percent, expanding contributions to the Fund of Funds with 54.9 percent, and increasing venture investment by pension funds and statutory funds with 54 percent were cited as key policy tasks. Allowing retirement pensions to invest in venture capital also received 44.2 percent support. The results reflect the view that increasing the pool of investment capital must go hand in hand with restoring exit market functions.