[Reporter’s Notebook] Politics Hampers Venture Investment... Future Growth Engines Must Come First

"It seems that political issues have never had such a significant impact on the economy as they do now. The difficulty of investing is higher than ever." On the 4th, during the 'Korea Venture Capital (VC) Awards' event hosted by Korea Venture Investment Corp., Yoon Geon-su, chairman of the Korea VC Association, expressed such concerns in his congratulatory speech. The event took place on the evening of the day when an unprecedented emergency martial law was declared and lifted since the democratization in 1987. Although the atmosphere was celebratory, selecting outstanding fund-of-funds managers and analysts and connecting limited partners (LPs) with VCs, conversations among industry insiders worried about the political situation that unfolded overnight were heard throughout the venue.

The VC industry, which has been experiencing a 'harsh investment market' for several years, finds this situation even more frustrating. Under the Yoon Seok-yeol administration, the investment environment has deteriorated. A representative example is the drastic cut in the Ministry of SMEs and Startups' fund-of-funds contribution budget. This year's budget was 454 billion KRW, only half of the 1 trillion KRW in 2020. Although next year's budget proposal was set at around 500 billion KRW, about 10% higher than this year, discussions in the National Assembly have come to a complete halt due to the martial law situation. Another issue is that the position of CEO of Korea Venture Investment Corp., which oversees the fund-of-funds project, has been vacant for over a year. Although three candidates were shortlisted two months ago, it is uncertain whether the CEO will be appointed by the end of the year due to political turmoil. Final appointment is difficult without approval from the Presidential Office.

As this situation expands capital outflows and uncertainty across the market, the rich-get-richer, poor-get-poorer phenomenon among VCs is expected to solidify further. In fact, until October, the proportion of new investments by domestic VCs by company age showed that early-stage investments accounted for only 20%, while late-stage investments reached 45%. Last year, early-stage and late-stage investments were 24.6% and 37.8%, respectively. VCs with abundant funds may afford to be relaxed, saying "considering valuations, now is the right time to invest," but many VCs have no choice but to be more cautious about new investments. If the 'stability-oriented' investment trend deepens, the essence of venture capital?discovering early-stage companies with ideas and technological competitiveness?will be diminished.

South Korea, facing low growth and low birthrate issues, urgently needs to secure new future growth engines beyond semiconductors. Regardless of the confusion caused by the impeachment process, the political sphere must continue efforts to revitalize venture investment. If the VC industry's demand for 'retirement pension contributions to venture funds' is realized, at least several trillion won could flow into the market. Since VCs earn profits through portfolio companies' initial public offerings (IPOs), the 'activation of the KOSDAQ market' for smooth capital recovery is also a prerequisite for expanding new investments. The bill to introduce 'Business Development Companies (BDC),' which collect individual investors' money through public offerings to invest in venture companies, was discarded due to the expiration of the 21st National Assembly's term but has recently been reintroduced. Unlike impeachment, which requires the consent of 200 members of the National Assembly, these matters can be quickly advanced with only political interest and effort. Politics must no longer hinder venture investment.