[Startup Struggle ③-2] "More Private Capital Needed to Foster Startup Ecosystem"

Entering the Era of Annual Venture Investment Amounts Reaching 40 Trillion Won

Domestic venture investment is expected to enter the '4 trillion won era' annually. In terms of investment amount, it is showing a steep growth trend, breaking the all-time high record. However, from a long-term perspective, experts point out that for the investment ecosystem to become self-sustaining and continue growing, it is essential to attract more diverse private capital into the market and to revitalize the exit market through mergers and acquisitions (M&A) and initial public offerings (IPO).

◆The Pros and Cons of the 4 Trillion Won Annual Venture Investment Era = According to the Korea Venture Capital Association, venture investment from January to November last year totaled 3.8115 trillion won, a 22.0% increase compared to the same period the previous year. Looking into the details, investment in companies related to the Fourth Industrial Revolution amounted to 1.5996 trillion won, up 30.3% year-on-year, exceeding the overall venture investment growth rate. By business age, 'venture investment' in startups within seven years of establishment accounted for 75.2%, the largest share. The upward trend in venture investment is expected to continue this year as well. According to a survey conducted by the Venture Capital Association targeting 107 member companies, 60.6% of venture capitalists (VCs) responded that they plan to expand investment scale next year, 21.1% said it would be similar to this year, and 18.3% expected a decrease.

However, the continuous trend of small-scale investments is notable. In 2013, the average investment amount per deal in Korea was about 1.8 billion won, roughly one-third of that in the United States, but by 2018, it was 2.4 billion won, which is about one-sixth compared to the US average of 14 million dollars. While the US shows a clear trend of 'large-scale' investments, the domestic situation is different. In fact, by November last year, only 60 companies in Korea had attracted investments exceeding 10 billion won, an increase of just seven companies compared to 53 in the same period the previous year. The average size of individual venture funds in Korea was about 29 billion won in 2013, roughly one-third of the US, but by 2018, it was 32.1 billion won, about one-seventh of the US, widening the gap. This is why there are criticisms that domestic venture investment is only leading to an increase in the number of companies and venture funds satisfied with small-scale investments.

◆VCs Creating Innovative Startups = Despite this situation, VCs have played a role in promoting the creation of innovative startups in new industry sectors. VC investments in exchange for equity do not impose debt burdens on startups, which have long periods before realizing profits and high failure risks. According to the 'Comparison of Startup Investment Ecosystems in Korea, the US, and China' by the Korea International Trade Association's International Trade Research Institute, major domestic startup investors include the government's private investment-led technology startup support program 'TIPS' as well as active players like Kakao Ventures, Capstone Partners, Korea Investment Partners, Altos Ventures, DSC Investment, and Primer. Among them, Kakao Ventures creates synergy with Kakao through large-scale investments in promising startups. Altos Ventures is evaluated to have expanded the Korean startup investment network by linking follow-up investments from global investors. According to a survey by Startup Alliance on VCs preferred by founders, Altos Ventures, SoftBank Ventures, and Korea Investment Partners ranked highest in preference.

Such VC investments help grow startups into unicorns, and investments by VCs with experience in nurturing unicorns lead to increased startup company value. A representative case is the game startup 'NPIXEL,' which recently secured 30 billion won in investment. Saehan Venture Investment and Altos Ventures, which discovered domestic unicorn companies like Coupang, Viva Republica, and Woowa Brothers in their early stages, participated in the investment. This investment is evaluated to have laid the foundation for NPIXEL to become a global game company. Bae Bong-geon, co-CEO of NPIXEL, said, "This investment is significant because it was recognized by investors who have previously discovered unicorn startups and global game companies."

However, experts point out that the high proportion of government policy support funds and the still low proportion of VC funding in the investment funding sources of Korean startups need improvement. Seo Dae-hoon, a senior researcher at the Future Strategy Development Department of KDB Future Strategy Research Institute, emphasized, "To create a self-sustaining startup ecosystem, it is necessary to create an environment that can attract more private capital."