VC, Fund Formation Deadlines Postponed One After Another... Failed to Secure Private Capital

Mother Fund Sub-Fund Managers Fail to Meet Formation Deadlines
Increasing Difficulty in Private LP Marketing

[Asia Economy Reporter Kwangho Lee] Many venture capitalists (VCs) selected as general partners (GPs) for Korea Venture Investment's mother fund sub-funds this year are facing difficulties. Despite securing policy funds, they are unable to find private limited partners (LPs), making it impossible to meet the fund formation deadlines.

According to the investment banking (IB) industry on the 22nd, a significant number of venture capitalists who submitted investment proposals in the first regular mother fund investment project in the first half of this year and ultimately obtained GP status are struggling to form funds within the deadline.

For the first regular mother fund investment, the selection announcement was made on March 3. Based on that date, the fund formation deadline is September 3. However, as fund managers face difficulties in forming funds, the government is reportedly also concerned.

This fact has come as a shock to the industry. This is because those who obtained GP status are competing increasingly fiercely to secure policy funds. Despite having prominent fund manager-level personnel and clear track records, the reality is that they cannot find private LPs.

A venture capitalist said, “It is very unusual that not just a few but many have to postpone the formation deadline due to failure to fill private funds,” adding, “The problem is that the number of such GPs may increase over time.”

Obtained GP Qualification but... Slow Private Fundraising

Originally, their normal schedule was to form blind funds next month, but it is expected to be delayed until the end of the year. Fund managers with ample existing fund resources are not significantly affected, but those with limited remaining resources are practically unable to invest.

The government is not unaware of this situation. Korea Venture Investment is reviewing an extension of the fund formation deadline for the first mother fund investment project under the direction of Lee Young, Minister of SMEs and Startups. Although still under discussion, there is growing weight on the possibility of extending the deadline to December instead of September.

Banks, Securities Firms, and Capital Companies Actively Knock

At the same time, they are also considering easing venture investment partnership formation requirements, such as the 'Fast-Closing' option. Fast-Closing is a system that recognizes fund formation when 70% of the total fund commitment amount is collected. The issue is fairness, as some have managed to raise private funds and form funds despite the difficult market conditions.

The direction of policy remains to be seen, but an environment favorable to the industry is likely to be created. Nevertheless, securing private LP funds is expected to be a long-term challenge. This is because, although there are more private LPs than policy institutions, there is a severe concentration of investments in specific fund managers.

The problem is not limited to the mother fund. It is reported that many fund managers who have secured anchor LPs such as Korea Growth Finance and Agricultural Insurance Policy Finance Corporation are still unable to find private LPs.

A venture capital CEO currently conducting private LP marketing said, “In the past, raising private LP funds was a big challenge, but now the difficulty has increased significantly,” adding, “Especially for independent fund managers without parent companies or affiliates, it is like hitting the ground headfirst.”