VC Capital Inflows Up 12% in a Year... Investment Becomes Even More Conservative

Both Investment Capital and New Investments Rise
More Investments Flow into Late-Stage Companies, Fewer into Early-Stage
"LP Evaluation Criteria Now Focused on Profitability"

Over the past year, the amount of capital flowing into the venture capital (VC) market has continued to increase, but the trend toward risk-averse investment has grown even stronger. Analysts attribute this to both limited partners (LPs), such as pension funds, and VCs themselves focusing on risk management and rapid profit realization in the context of several years of liquidity contraction.

According to the Korea Venture Capital Association (VC Association) on May 22, the number of newly established funds in the first quarter of this year (January to March) was 61, an increase of 22% (11 funds) compared to the same period last year (50 funds). The total committed capital also rose by 12% (KRW 198.6 billion), from KRW 1.598 trillion to KRW 1.7966 trillion over the same period. As a result, the total number of venture funds currently in operation increased to 2,204 (KRW 62.3321 trillion), compared to 1,985 funds (KRW 57.9167 trillion) a year ago.

Participation from private capital markets, including financial institutions and pension funds/mutual aid associations, has expanded. In the first quarter, financial institutions and pension funds/mutual aid associations accounted for 31.5% and 16.5% of new fund LPs, ranking first and second, respectively. These figures represent increases of 14.3 percentage points and 4.2 percentage points, respectively, compared to the same period last year. In contrast, Korea Growth Finance, a policy finance institution, saw its share drop by 8.9 percentage points over the year to 2.8%.

Regarding this trend, a senior official in the venture investment industry stated, "Korea Development Bank and IBK Industrial Bank are actively carrying out fund investment projects as planned this year, and as cases of these institutions directly selecting GPs (general partners) through competitive bidding increase, the share of Growth Finance is decreasing."

With an increase in investment resources, new investments by VCs have also expanded. In the first quarter of this year, the amount of new investments reached KRW 1.2174 trillion, a 15% (KRW 156.9 billion) increase from KRW 1.0605 trillion a year earlier. However, the number of newly invested companies was 518, an 18% (117 companies) decrease from 635 companies in the same period last year.

Despite the expansion of market capital, VCs have become more conservative in their investment approach. In the first quarter, the proportion of late-stage companies (over 7 years old) among VC new investments was 48.6%, up 8 percentage points from 40.6% in the first quarter of last year. The share of early-stage companies (3 years old or less) fell by 7.2 percentage points, from 24.3% to 17.1% during the same period. Of the total new investment amount, KRW 592.1 billion went to late-stage companies, while KRW 417.2 billion and KRW 208.1 billion were invested in mid-stage and early-stage companies, respectively.

Investment capital is also being concentrated in sectors with "proven growth potential," such as artificial intelligence (AI) and biotechnology. In the first quarter, the largest share of new VC investments went to the ICT manufacturing and services sector (35.1%), followed by bio and medical (16%).

Commenting on this, a VC CEO said, "Recently, LPs are looking at short-term returns over 'five to ten years' when selecting GPs. Since the exit market is challenging, capital is only flowing to proven management firms and funds with solid track records, so VCs are also investing in late-stage companies that can be exited more quickly and in sectors with greater stability."

Meanwhile, as of the first quarter of this year, there were four new venture investment firms, bringing the total number of operating firms to 252. The number of newly registered venture investment firms has declined for two consecutive years since 2022 (42 firms).