Small and Medium VC, License 'Survival Game'... Tearful Endurance with Equity Investment

Survival Strategies to Overcome the 'Valley of Death'
55 VCs Without Fund Formation, 15.3% of Total
Strong Presence of Financial Sector VCs...Increase in Large VC Share Too

More venture capitalists (VCs) are building investment records solely with their own capital to comply with VC licensing requirements. This is because they risk being deregistered if they have no investment performance. Some have even resorted to 'formalities' by filling their records with investments that are difficult to view as legitimate.

According to the Venture Investment Electronic Disclosure (DIVA) on the 27th, 10 VCs made investments solely through proprietary accounts without fund formation in the first quarter. VC investment performance consists of proprietary accounts and partnerships. Proprietary accounts refer to investments made with their own capital, not external funds. Simply put, it is 'company money.' Partnerships refer to investments made through funds formed with external capital.

Three VCs Invested Less Than 100 Million KRW... "A Desperate Measure to Build Records"

The investment amounts of the 10 VCs that built investment records (track records) solely with their own capital ranged from as low as 6.52 million KRW to as high as 1 billion KRW. Three VCs executed investments under 100 million KRW, specifically 99.97 million KRW, 50 million KRW, and 6.52 million KRW respectively. These amounts are rare in the VC industry, which is distinct from accelerators (ACs).

An industry insider said, "While proprietary account investments themselves are not unusual, considering the scale of the investments, it is highly likely a formality to avoid sanctions from the Ministry of SMEs and Startups. Since it is difficult to form funds by raising external capital, this appears to be a desperate measure to build track records." VCs, also known as venture investment companies, are subject to sanctions by the Ministry of SMEs and Startups under the 'Venture Investment Promotion Act' if they have no investments for more than one year without justifiable reasons. Sanctions can include suspension of operations for up to six months, corrective orders or warnings, and in the worst case, deregistration (cancellation).

It was also found that 55 VCs had no fund formation history at all since the first quarter of 2023. This accounts for about 15.3% of the total 359 VCs. This means that one out of every ten VCs is effectively 'closed for business.' Among them, 22 VCs had no investment performance whatsoever. This indicates they did not even have the capacity to build track records through proprietary account investments with their own capital. These VCs are highly likely to face sanctions from the Ministry of SMEs and Startups for 'no investment for over one year' in the future.

Financial Sector VCs Maintain Strong Performance... Increase in Large-Scale Shares

The most active VC in terms of investment in the first quarter was KB Investment, with 51.4 billion KRW. The strong performance of financial sector VCs, which has continued since last year, persisted. Korea Investment Partners (34.5 billion KRW) ranked third, and Woori Venture Partners (28.4 billion KRW) ranked fifth, with three of the top five investment amounts belonging to large financial group-affiliated VCs. Thanks to their parent groups' strong capital contribution capabilities, they have an advantage in 'financial power' compared to other VCs.

Excluding financial company-affiliated VCs, the top five in investment performance were Company K Partners (38.4 billion KRW), Intervest (28.9 billion KRW), SV Investment (24.7 billion KRW), Smilegate Investment (22.2 billion KRW), and Stonebridge Ventures (21.7 billion KRW). All are large VCs managing assets under management (AUM) in the trillion KRW range. Meanwhile, the top 10 VCs by investment performance in the first quarter accounted for 29.7% (292.6 billion KRW out of 981.9 billion KRW), an increase from 25.9% in 2023. This indicates a growing concentration phenomenon toward top VCs.