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Minister Kwon Chil-seung of the Ministry of SMEs and Startups is giving a briefing on the expansion plan for investment-type R&D at the briefing room of the Ministry of SMEs and Startups building on August 31. Photo by the Ministry of SMEs and Startups
[Asia Economy Reporter Kim Heeyoon] The government has decided to nearly quadruple the budget for investment-type technology development (R&D) by 2025 to expand support.
On the 31st, the Ministry of SMEs and Startups announced that it will significantly expand investment-type technology development (R&D), where venture capital (VC) makes initial investments linked to the investment market and the government provides matching support afterward.
This expansion plan was prepared to promote challenging and innovative technology development by focusing on promising small and medium-sized ventures in the hardware and manufacturing sectors that are in the scale-up stage.
Currently, 97% of the Ministry of SMEs and Startups' technology development budget is in the form of grants. There has been criticism that this approach, focused on short-term and small-scale projects, makes it difficult to support results through bold challenges.
A Ministry of SMEs and Startups official explained, "We have decided to expand and reorganize 'investment-type technology development' to enable bold pursuit of challenging and innovative technology development in a more autonomous environment. First, by 2025, we will expand the investment-type technology development method to about 10% of the Ministry’s total technology development budget (300 billion KRW), and especially focus more than 80% of the investment-type technology development budget on promising small and medium-sized ventures (Tech Firms) in the relatively underserved manufacturing and hardware sectors."
This year, investment-type technology development accounts for about 2.8% of total R&D (50 billion KRW). Investment-type R&D will also increase from 12% (222.1 billion KRW) this year to 30% by 2025. The Ministry’s technology development budget for this year is 1.77 trillion KRW.
Breaking away from the grant-only approach, the proportion of technology development linked to the investment market will be significantly expanded to utilize the private sector’s expertise in company selection, investment, and nurturing.
The government will focus more than 80% (currently 63%) of investment-type technology development on promising small and medium-sized ventures (Tech Firms) in the manufacturing and hardware sectors, which have been relatively neglected in the investment market.
The government will identify and support projects with high social and economic ripple effects upon successful technology development but high failure risks that make active private investment difficult, such as carbon reduction, COVID-19 vaccine and treatment development, fine dust, core technologies in materials, parts, and equipment, system semiconductors, and other social problem-solving technology development projects.
Innovation and challenge projects led by small and medium ventures will be selected through open calls and designated as policy-driven types, with significantly increased support limits to back first-mover type challenges pioneering new fields.
Additionally, using the TIPS method that supports startups, a new 'Scale-up TIPS' (tentative name) will be established to revitalize the related ecosystem. A consortium in the form of 'R&D service companies + venture capital (VC)' will be selected as the operating entity to enable collaboration between private companies with technological capabilities and venture capitalists with investment insight.
Moreover, the Ministry of SMEs and Startups will support investment-type technology development to establish itself in the startup ecosystem through various incentives and support infrastructure, including government equity call options (60%), improved spending autonomy, simplified evaluation procedures, and dedicated support personnel.
Minister Kwon Chilseung stated, "We will focus on activating an innovation ecosystem for technology development (R&D) based on investment by expanding innovative and challenge-type investments in technology-intensive promising small and medium ventures. In particular, we expect investment-type technology development (R&D) to serve as a catalyst for the growth of promising small and medium ventures in the hardware and manufacturing sectors, which have been neglected in venture capital (VC) investments. The Ministry of SMEs and Startups will continue to strive to support market-friendly companies by utilizing private sector expertise and capital."
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