More gov’t money for start-upsAfter a record amount of venture capital was invested in Korean start-ups last year, the government is coughing up 618 billion won ($581 million) for a joint venture capital “fund of funds” with the private sector that will total 1.16 trillion won this year.
A fund of funds invests in other types of funds for diversification and more secure asset allocation that is less affected by market volatility.
The fund of funds was originally launched in Korea in 2005, based on the Special Measures for the Promotion of Venture Businesses Act and has been managed by the state-run Korea Venture Investment Corporation. “Venture” is a common Korean business terminology for a startup.
Of the 618 billion won government contribution, 435 billion won will come from the Ministry of Small and Medium Enterprises (SMEs) and Startups, and the remaining 183 billion won will be sourced from five different ministries and government bodies: the Ministry of Culture, Sports and Tourism; Ministry of Health and Welfare; Korea Intellectual Property Office; Ministry of Environment; and Ministry of Employment and Labor.
The Ministry of SMEs and the Korea Venture Investment Corporation began raising private capital and recruiting capital management firms on Wednesday and will complete the procedure by the end of July.
Last year, the government injected 860 billion won into a 1.68 trillion won venture capital fund that led to the creation of 48 venture capital firms investing in five different fields including start-ups launched by young entrepreneurs, fourth industrial revolution-related enterprises and in entrepreneurs who failed in the previous business and were struggling to recuperate.
This year, the Ministry of SMEs and Startups, which was created in July as a result of the reorganization and expansion of the Small and Medium Business Administration, is investing 168 billion won in early-stage start-ups, followed by 112 billion won in companies experiencing rapid growth. The ministry is targeting funds that invest in startups that specialize in resolving social issues - “social impact funds” - for the first time. That budget is 50 billion won.
The ministry has also adopted a new rule to guarantee the autonomy of the private sector by accepting proposals from private fund managers to invest in fields that the government has yet to designate as investment destinations.
“This year marks the first time that a fund of funds will be managed in a different manner than previous years,” said Park Yong Soon, manager of the venture investment division at the Ministry of SMEs and Startups. “Venture capital investment is expected to contribute to creation of new jobs and new industries.”
When funds continue investing in the next four or five years in start-ups, it will lead to some 6,600 new jobs, the ministry projects.
Other major institutional investors, including the Korea Development Bank, are preparing to invest in venture capital funds this year. According to data from the Korea Venture Capital Association, 5.2 trillion won of capital will be spent on start-ups, the largest amount in history, up nearly 1 trillion won from last year’s 4.4 trillion won.
BY SEO JI-EUN [firstname.lastname@example.org]