The Ministry of SMEs and Startups will invest 1 trillion won from the Korea Fund of Funds to create a total venture fund of 1.9 trillion won.
The Ministry of SMEs and Startups noted on the 22nd that it plans to invest 1 trillion won through the '2025 Korea Fund of Funds 1st Regular Investment Announcement' to establish a venture fund of 1.9 trillion won. This announcement reflects the ministry's intention to supply seed money early to support the recovery of venture investment.
◇Largest investment ever in global funds
The Ministry of SMEs and Startups will invest a record 180 billion won in the 'Global Fund' to support domestic startups in attracting foreign investments, creating a fund exceeding 1 trillion won. Starting this year, domestic venture capitalists (VCs) are allowed to participate independently in the Global Fund investment business to expand their global investment networks based on their experience.
The 'Regional Era Venture Fund,' which focuses on investing in ventures and startups outside the capital region, will receive a maximum investment of 200 billion won. This fund will be jointly established over three years by the Korea Fund of Funds, local governments, local banks, and regional flagship companies, aiming to create more than 1 trillion won. The areas for the 2025 fund will be selected in February.
Considering the recent contraction in early-stage investment, 100 billion won will be invested, marking a 25% increase compared to last year, in the area of startup funding. Additionally, a 'Lycon Fund' that nurtures entrepreneur-type small corporations will continue to be established with a scale of 25 billion won. This fund is planned to invest in entrepreneur-type small corporations nationwide, including the capital area, starting this year.
Investment policies in the bio sector will also be strengthened. An investment of 30 billion won will be made in the 'Bio' fund to nurture early-stage pharmaceutical and bio ventures prior to clinical trials, creating a new fund of over 50 billion won.
A merger and acquisition (M&A) fund to support the succession of corporations in small and medium enterprises will be initially created with a scale of over 75 billion won. With the proportion of CEOs in manufacturing small and medium enterprises aged over 60 increasing to one-third of the total, there is a need for smooth business succession, such as third-party M&A, to ensure sustainable management for those without heirs.
An investment of 100 billion won, equal to 10% of the budget for investment in the 'Rookie League' that supports small and newly established VCs entering and settling in the venture investment market will be stably allocated. Support for investment blind spots will also continue through the establishment of funds for women (16.7 billion won), youth entrepreneurship (66.7 billion won), and re-start (50 billion won).
The Korea Fund of Funds, in collaboration with major corporations, financial institutions, pension funds, and mutual aid associations, will start gauging interest from investors in the 'Startup Korea Fund' and the 'LP First Step Fund' from the 24th. Once discussions on investor participation are completed, a separate announcement for selecting management companies will be made.
◇Reforming the Korea Fund of Funds to be market-friendly
Despite the increasing economic uncertainty and challenging times, the Ministry of SMEs and Startups will reform the investment business of the Korea Fund of Funds to be more market-friendly so that VCs can fulfill their fundamental roles in venture investment. To promote a virtuous cycle of 'investment → recovery → reinvestment,' the ministry will support the activation of the secondary recovery market by recognizing up to 20% of share repurchases as primary objective investments for two years.
Investment firms that actively engage in early-stage investment will be given preferences. Those that propose an obligation for early-stage investment will receive bonus points during the selection evaluation, and corporations within five years that find it difficult to generate revenue will receive exceptional management fee waivers even if their financial statements deteriorate after investment.
To drastically expand the investment opportunities for ventures and startups outside the capital area, the local investment portion of general funds, rather than dedicated local funds, will be recognized as 120% primary objective investments. Local funds will favor management firms located in the region with substantial local investment experience to cultivate regionally specialized management companies.
In addition, to strengthen the patient capital role of the Korea Fund of Funds, the current investment period limit of four years will be abolished, and funds that operate for more than ten years in certain fields, such as early-stage and bio, will be given preference in selection.
To encourage VCs to engage in challenging investments, the guidelines for impairments, which determine the basis for management fees, have been reformed to be more market-friendly.
If improvements in the management of invested corporations are anticipated, the reduction of management fees can be deferred under the review of auditors, and if investment funds are recovered after management fees have been reduced due to capital erosion of the invested corporation, the reduced management fees will be paid retroactively. The payment structure of management fees will also be diversified to allow choices based on fund management strategies.