[CVC Golden Age]② Venture Capitalists Rush to Join Independent VCs

As VC Uncertainty Grows, More Reviewers Seek 'Stability'
Good Conditions Offered, Including High Salaries Without Large Performance Bonuses
Advantage of Being Able to Invest Without Worrying About Funds

Editor's NoteThe status of corporate venture capital (CVC) led by companies is changing amid the market downturn. While it has long been perceived as a 'second-tier' player overshadowed by general venture capital (VC), it has now established itself as a key player in the venture investment market. During times when raising funds is difficult, CVCs are thriving with support from parent companies and various affiliates. They are lowering the burden of fundraising by securing diverse limited partners (LPs). While VCs maintain a conservative investment stance, CVCs are actively investing and invigorating the investment ecosystem. Asia Economy examines the facets of CVCs to predict the future of the venture investment market.

[Asia Economy Reporter Kwangho Lee] “In times like this, you have to go to CVC.” A VC investment analyst said this after receiving an offer from a certain CVC. Currently, CVCs are opening their doors wide and hunting for talent. They are focusing on recruiting lead fund managers or analysts with significant track records through various headhunters. This contrasts with existing VCs, which are reducing hiring due to difficulties.

Recently, there has been a surge in analysts considering moving to CVCs. Regardless of the corporate form (vehicle) such as venture capital companies (Venture Capital Companies) or new technology business finance companies (New Technology Business Finance Companies), and regardless of the scale of assets under management (AUM), analysts from various backgrounds are seeking to transfer to CVCs. Until last year, CVC analysts struggled to move to VCs, but this situation has reversed this year.

In the past, CVCs were strongly perceived as stepping stones to VCs. Many sought to gain some investment experience before moving to VCs. Due to the nature of CVCs focusing on synergy with the parent company, analysts had somewhat limited investment authority. Above all, the issue of ‘performance bonuses’ was significant. Unlike VCs, CVCs tend to recognize individual analysts' investment performance less.

For example, Kim Je-wook, Vice President of independent VC Atinum Investment, received 26.1 billion KRW in performance bonuses in the first half of this year alone. The valuation of the company he first invested in rose about 400 times. Atinum Investment paid him a substantial incentive according to the company’s performance bonus policy. Such jackpot cases are rare in CVCs.

The major reason many analysts consider moving to CVCs is the fundraising issue. Currently, many VCs are struggling with funding shortages. They need to form blind funds and project funds mainly with external capital, but unlike previous years, they are facing higher difficulties. It has become common to change fund formation plans due to difficulties in securing capital.

As the budget for the Korea Venture Investment Corporation’s (KVIC) mother fund, a representative anchor LP, decreases and private LPs close their wallets due to high interest rates, the difficulties are intensifying. Although they need to steadily form funds and increase profits from fund management, the situation is not easy. Therefore, there is a tendency to slowly deplete existing funds. Consequently, analysts’ work is also decreasing.

A lead fund manager-level analyst said, “Investment is our business, but being unable to invest is causing stress,” and added, “We are actively engaging in LP sales, but funding remains difficult.” He continued, “The fundraising challenge is huge, and there is no sign of improvement,” explaining, “Many analysts prefer to move to CVCs to invest without worrying about funds.”

The number of lead personnel choosing to move to CVCs has also increased. Shin Kwan-ho, head of Prologue Ventures, joined the company affiliated with Hyundai Corporation after working at Korea Technology Investment (now SBI Investment), LIG Investment Securities PE division, Trinity Equity Partners, Union Investment Partners, and NH Venture Investment. Jo Dong-geon, CEO of LF Investment affiliated with LF, previously served as Vice President at DT&I Investment after working at M Ventures Investment. F&F Partners, affiliated with F&F, is led by CEO Noh Woo-ram, who has been active at M Ventures Investment, Neoplux (now Shinhan Venture Investment), and Square Ventures.

The movement of analysts is interpreted as a preemptive measure in preparation for a crisis expected to intensify next year. According to the Ministry of SMEs and Startups’ data on venture fund formation this year, a total of 278 venture funds worth 7.0517 trillion KRW were formed by the third quarter. The number of funds and the amount raised recorded the highest for the first to third quarters ever. Although the performance was solid until the third quarter, the industry expects the crisis to intensify in the fourth quarter and the first and second quarters of next year.

CVCs are taking advantage of the favorable moment. A CVC representative said, “Traditional VC professionals from venture capital companies are steadily knocking on CVC’s door,” and added, “We feel that the status of CVCs has changed.” He emphasized, “At times like this, we need to secure high-level talent to complete the investment team,” and noted, “Although the performance bonus system is insufficient, we are offering various incentives centered on high salaries.”

Additionally, a path to securing policy funds has opened. The Ministry of Trade, Industry and Energy has launched the first-ever CVC fund investment project. The ministry selected two entrusted operators (GPs) for the ‘CVC Innovation Enterprise Support Scale-up Fund (CVC Fund)’ and plans to invest 20 billion KRW each. CJ Investment, Prologue Ventures, and Hyosung Ventures are competing.