[The Golden Age of CVCs] ① From Major Conglomerates to Mid-Sized Firms, Everyone Is Entering the Field

Dongwon, GS, Hyosung, and LF Enter the Market
LG and LX Accelerate Preparations
Mid-Sized Companies from Various Sectors Join the Race
Conglomerate Affiliates Provide Ample Capital Amid VC Fund Shortages
Preference for New Technology Business Finance Companies Over Traditional Venture Capital Firms

Editor's NoteThe status of corporate venture capital (CVC) is changing amid a market downturn. While CVCs have long been regarded as "second-tier" players, trailing behind traditional venture capital (VC) firms, they have now firmly established themselves as major players in the venture investment market. In a time when fundraising is difficult, CVCs are thriving with support from their parent companies and various affiliates. By securing a diverse range of limited partners (LPs), they are easing the burden of fundraising. As VCs maintain a conservative investment stance, CVCs are actively investing, injecting new energy into the investment ecosystem. Asia Economy takes a closer look at the landscape of CVCs and explores the future of the venture investment market.

[Asia Economy, Lee Kwangho] A wave of corporate venture capital (CVC) establishment is sweeping through the market. This trend has been accelerated by the amendment of the Fair Trade Act in December of last year, which provided a legal basis for holding companies to own CVCs. With these regulatory barriers lifted, large conglomerates, KOSDAQ-listed companies, and even startups are actively setting up investment firms, signaling the arrival of the "golden age of CVCs." As companies' retained earnings flow into the venture investment market, positive effects are expected.

Starting this year, holding companies have been allowed to have CVCs as financial subsidiaries. With the path to establishing CVCs now open, major holding companies have become increasingly active. There is a growing movement to go beyond simple venture investments and discover growth engines that will shape the future of their groups. Some have already established CVCs, while many others are still in the process of preparing to do so.

The primary purpose of setting up a CVC is to create synergies with group affiliates. CVCs focus their investments on companies that can benefit their core businesses, fostering collaboration. Before the amendment of the Fair Trade Act, CVCs were established outside of the holding company structure, typically through affiliates or overseas subsidiaries. Notable examples include Samsung Venture Investment, Kakao Ventures, and KT Investment.

After the amendment of the Fair Trade Act, these indirect methods are no longer necessary. With the government's policy direction supporting the activation of CVCs, the number of CVCs has naturally increased. As venture capital (VC)-a sector known for its high-risk, high-return profile-has become more risk-averse and domestic startup investment has significantly contracted, CVCs are stepping in to fill the gap and drive the investment ecosystem forward.

Among the more recently established firms, CVCs affiliated with large conglomerates and boasting ample capital are particularly noteworthy. These include: Dongwon Technology Investment (Dongwon), GS Ventures (GS), F&F Partners (F&F), CJ Investment (CJ), Hyosung Ventures (Hyosung), LF Investment (LF), Plan H Ventures (Hoban Construction), Spring Ventures (Eugene Group), Rising S Ventures (Geumseong Baekjo), SGC Partners (SGC Energy), Welcome Ventures (Welcome Financial Group), and Seah Technology Investment (Seah Group).

Depending on their objectives, CVCs are structured as either venture capital companies or new technology business finance companies. However, many prefer the latter, as it allows for a broader investment scope than traditional venture capital firms. With demand surging, obtaining a license can take considerable time. F&F Partners and Rising S Ventures have already secured licenses as new technology business finance companies.

In addition, some companies are operating their own investment teams or preparing to establish VCs. For example, Hyundai Motor Company and Kia Motors have not set up separate legal entities but are running CVC teams within the company. LG Group, led by Hong Beomsik, head of LG's Corporate Strategy Team (President), is forming an investment team in preparation for launching an investment firm. LX Group, another LG affiliate, is also considering establishing a CVC. There is keen interest in whether they will set up a new entity or utilize an existing investment house.

Mid-sized companies are also entering the CVC space. Sirius Investment (Hwacheon Group), Villance Investment (Daejeo Construction), Pentastone Investment (Y-Palm), CNCI Partners (Koasia), and MW Company (Korea & Company) have all declared their entry. These firms have also completed registration as new technology business finance companies, which offer relatively high investment autonomy. After securing their licenses, they are expected to begin full-scale operations.

An industry insider commented, "With the regulatory barriers for CVCs lifted, a variety of companies are showing interest in CVCs. The main reason they are gravitating toward new technology business finance companies is the greater flexibility in investment." He added, "Direct investments in new technology businesses, KONEX-listed companies, and startups are possible, as well as indirect investments through funds. It is highly likely that future CVCs will also choose this structure."

The number of CVCs is expected to continue growing. As awareness spreads that CVCs can achieve both the strategic objectives of their parent companies and financial returns, the momentum is building. Many companies are already focusing on recruiting investment professionals even before establishing CVCs. They are actively reaching out to venture capital investment managers and professionals with industry experience. The industry is watching closely to see which new CVCs will emerge by the end of this year or early next year.