This article was displayed on the ChosunBiz MoneyMove site on Aug. 19, 2025, at 9:16 a.m.
Domestic venture capitalists (VCs) are facing a funding competition this year like never before. Although the government has launched a public fund pool to revitalize the venture market, private investors (LPs) are reluctant to invest in venture funds, leading to a worsening 'zero-sum game' for VCs.
According to the VC industry and the Ministry of SMEs and Startups, up to 15 additional VCs will join the venture fund funding competition in the second half of this year. This is influenced by the Ministry securing a budget of 300 billion won for the fund of funds (FoF) through the second supplementary budget and immediately pushing forward the second regular investment project of the FoF.
The second regular investment project of the FoF, under the Ministry, aims to selectively invest 310 billion won to create venture funds that discover and invest in deep tech startups. It is projected that 15 funds with a total size of 600 billion won, including 290 billion won in private matching funds from selected VCs as general partners (GPs), will be formed.
There are increasing complaints among VCs about the growing difficulty of funding. Private investment has remained stagnant amid the effects of high interest rates and economic downturn, while the government's expansion of venture investment fund execution has led to adverse effects that intensify competition among VCs.
Currently, for VCs that have received funding from the FoF, securing private funds is essential to form a venture fund. This is because the FoF can cover up to 60% of the total formation amount. For example, a VC aiming to establish a 10 billion won fund can receive 6 billion won from the FoF, but must raise 4 billion won in private funds.
Although the government is implementing a 'private leverage' strategy, in which it injects initial funds for venture investment and subsequently induces private capital inflow, the problem is that only the government's public fund injection is increasing. The budget of the FoF was already increased to 1 trillion won before the supplementary budget from last year (900 billion won).
A source in the VC industry said, 'The government is pouring funds into the venture investment market, claiming it wants to revive it, but increased funding amid limited private funds only leads to delays in formation.' They added that VCs selected as GPs in the first regular investment project in April have not yet completed the fund formation.
The regulations strengthening the management of risk-weighted assets (RWA), which were fully implemented last year, are also pointed to as a cause of funding difficulties. The financial authorities have classified venture fund investments as 'high-risk investments,' requiring financial institutions in the banking sector to calculate amounts invested in venture funds as four times the actual investment amount in risk assets.
In addition, banks are subject to a standard that requires them to hold 8% of risk assets as their own capital. As a result, the burden of capital that must be maintained when investing in venture funds has increased, making investment more difficult. In fact, the amount invested by financial institutions in venture funds last year was 2.8721 trillion won, a 31.9% decrease from the previous year.
Sources in the VC industry express concerns that the current structure may distort the market in the long term. Some VCs that have been selected as operators for the FoF investment projects have been slashing management fees to match private funds, while cases have even emerged where VCs are covering private fund recruitment with borrowed funds.
A source in the VC industry remarked, 'The government previously pushed for a plan to lower the RWA weight when banks invest in venture funds to activate investment by financial institutions, but it should have accelerated only after at least relaxing RWA regulations, rather than just prioritizing the selection of GPs.'
Meanwhile, the number of newly formed venture funds is also decreasing due to the deepening funding difficulties. According to the VC industry, 358 newly formed venture funds were established in the first half of this year, a 12.5% decrease compared to the same period last year. This is the lowest level in the past five years in the first half, and represents a 29.8% decrease compared to the first half of 2022 (510 funds).