Domestic Startup Investment Drops by More Than 70%

Investment Amount as of July, 3.6 Trillion KRW Last Year → 0.8 Trillion KRW This Year
Most Are Early-Stage Investments, Late-Stage Investments Decrease
Changed VCs Begin Full-Scale Selection Process

[Asia Economy Reporter Kwangho Lee] Investment sentiment is freezing due to the global liquidity crisis. As the ripple effect spreads to the domestic venture investment industry, a red light has turned on for the capital injection into startups. Analysts say that venture capital (VC) firms are beginning to distinguish the wheat from the chaff in earnest.

According to Startup Alliance, a public-private cooperation network for startups, the total amount of investment raised by domestic startups in July was 836.8 billion KRW. This is a 72.7% decrease from 3.0659 trillion KRW in July last year. Compared to the previous month, June (1.3888 trillion KRW), investment also dropped by 38.9%. Concerns about inflation, interest rate hikes, and the Ukraine war are spreading to the venture investment market as well.

Until the first half of this year (January to June), the indicators were relatively good compared to the same period last year. The amount of startup investment raised in the first half was 7.0873 trillion KRW, with 977 investment deals. This is 62.7% and 90.8% higher, respectively, than 4.3549 trillion KRW and 512 deals in the first half of last year. This reflects the ‘startup boom’ period up to the first quarter of this year, which was called the second venture boom.

However, the indicators in July, the second half of the year, retreated. According to the ‘2022 First Half Venture Investment Trends’ recently announced by the Ministry of SMEs and Startups, venture investment in the first quarter of this year was 2.1802 trillion KRW. It surpassed 2 trillion KRW for the first time, raising market expectations. But in the second quarter, it decreased by 79.4 billion KRW (4.2%) year-on-year to 1.8259 trillion KRW.

Meanwhile, the number of investment deals increased while the investment amount decreased, which is noteworthy. In July, the number of domestic startup investment deals was 135, with an investment amount of 836.8 billion KRW. Compared to the same month last year (116 deals), the number of deals increased by 16.3%, but the investment amount (3.0659 trillion KRW) decreased by 72.7%. Compared to June, the number of deals decreased by 22.4%, and the investment amount also decreased by 38.9%.

In particular, early-stage investments increased compared to mid-to-late-stage investments. Early-stage investments accounted for 24.2% in the fourth quarter of last year but rose to 28.2% in the first half of this year. Conversely, late-stage investments decreased from 30.5% in the fourth quarter of last year to 25.8% in the first half of this year. Most of these are small-scale investments under 1 billion KRW. The proportion of seed investments under 1 billion KRW in the first half of this year was 53.3% (520 deals), a significant increase compared to 47.66% (244 deals) in the first half of last year.

In the first half of last year, there were four investments exceeding 200 billion KRW, including Noom Korea (602.7 billion KRW), TMON (305 billion KRW), and Riiid (200 billion KRW), but in the first half of this year, only Bucketplace, which operates Today’s House, succeeded in raising over 235 billion KRW.

Venture capitalists are being more cautious in discovering portfolio companies while executing only small-scale investments to reduce risk. As the venture capital industry, a representative sector of ‘high risk, high return,’ is shrinking back, there are concerns that the ‘scale-up’ of startups in the growth stage is being hindered.

A venture capital industry insider said, “Most firms adopted a strategy to quickly exhaust funds during boom times to secure as many portfolios as possible, but the situation has changed now,” adding, “It is difficult to secure not only policy funds but also private funds, so we are focusing on efficiently using the remaining fund resources.” He added, “However, since valuations have generally declined, there is also a perspective that sees this as an opportunity.”