Venture Investment Significantly Increases in Q3, Venture Fund Cumulative Formation Amount Turns to Growth Trend
[Asia Economy Reporter Kim Cheol-hyun] Venture investment performance, which was hit by the novel coronavirus disease (COVID-19) this year, turned to an increasing trend in the third quarter compared to last year. The year-on-year decline rate of cumulative performance up to the third quarter significantly decreased compared to the first half. With the increase in venture fund formation, the cumulative figures also turned to an upward trend. Despite the ongoing COVID-19 crisis, the recovery of the previously contracted venture investment market is becoming more evident.
The Ministry of SMEs and Startups (Minister Park Young-sun, hereinafter referred to as the Ministry) announced on the 27th that the venture investment performance in the third quarter of this year was recorded at 1.192 trillion KRW, a 6.0% increase compared to the third quarter of last year, based on an analysis of venture investment and fund formation trends for the third quarter of this year. Venture investment in the second quarter of this year decreased by about 27.2% compared to the previous year, but in the third quarter, quarterly performance increased for the first time this year compared to the same period last year. Compared to the second quarter, when the spread of COVID-19 became full-scale, it increased by about 34.8%, showing a very steep growth rate. Accordingly, the cumulative venture investment performance from January to September was recorded at 2.8485 trillion KRW, down about 8.7% compared to the same period last year. With the recovery of investment in the third quarter, the year-on-year decline rate significantly decreased compared to 16.9% in the first half.
By industry, investments in information and communication technology (ICT) manufacturing and ICT services, as well as digital and materials/components/equipment sectors such as electrical, mechanical, equipment, chemical, and materials industries, increased up to September compared to the same period last year. On the other hand, the bio/medical, video/performance/recording, distribution/service, and game industries saw cumulative investment amounts decrease compared to the same period last year, continuing the trend from the first half due to the overall stagnation of related industries caused by COVID-19.
Cumulative venture investment performance in the non-face-to-face sector up to the third quarter was 1.3362 trillion KRW. Its share of total investment increased by 3.6 percentage points from last year to 46.9%. The decrease rate in venture investment in this sector was 1.0% year-on-year, significantly lower than the overall venture investment decline. Particularly, on a quarterly basis, investment in the non-face-to-face sector steadily increased from the first quarter, reaching 578.7 billion KRW in the third quarter, a 42.5% increase compared to the previous quarter.
Venture fund formation performance in the third quarter of this year was recorded at 1.4793 trillion KRW, a 31.1% increase compared to the third quarter of last year. Until the second quarter, it showed a steady decline compared to last year, but it increased sharply in the third quarter. Compared to the second quarter, the third quarter fund formation performance increased by about 123.2%, showing a large growth rate. As a result, venture fund formation up to September was 2.6498 trillion KRW, an increase of about 6.3% compared to the same period last year. Although cumulative venture fund formation in the first half decreased by 14.2% compared to last year, cumulative venture fund formation including the third quarter returned to an increasing trend.
Analyzing the status of venture fund contributions formed up to September, policy finance contributions increased by about 48.2% year-on-year to 1.0239 trillion KRW. Policy finance contributions increased significantly due to large increases in contributions from the Korea Fund of Funds and policy institutions, resulting in a higher growth rate than in the first half. On the other hand, private sector contributions decreased by about 9.8% year-on-year to 1.6259 trillion KRW. Among these, contributions from individuals, foreigners, and other investors decreased by nearly 300 billion KRW, but contributions from pension and mutual aid associations and venture capital (VC) increased by 168.1 billion KRW, reducing the year-on-year decline rate compared to the first half.
Park Yong-soon, Venture Innovation Policy Officer at the Ministry, said, "The Korea Fund of Funds is scheduled to be formed within the year with a total scale of 3.6 trillion KRW in 2020, and most of the 2.5 trillion KRW venture funds selected in the first half have been completed, which is expected to drive investment in the fourth quarter." He added, "However, the overlap of social distancing level upgrades and the vacation season in the third quarter reduced venture capital's opportunities to discover investee companies, which could be a variable."
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