With SpaceX's listing as a catalyst, there is growing talk that Korea needs to overhaul policy fund structures suited to national strategic technology investment and the evaluation system for general partners (GPs). Policy funds are funds that invest government finances together with private capital in corporations that meet policy objectives such as venture and strategic industries. Critics say the current focus of domestic policy funds on GP evaluation and performance management based on internal rate of return (IRR) and exit records limits the nurturing of technology corporations that require long time horizons.
On the 13th, according to the venture investment industry, many domestic policy funds are formed with an average life of eight years, centered on the Korea Fund of Funds, which is funded by government finances. Korea Venture Investment Corporation evaluates the capabilities of managers and investment professionals, investment and exit records, and fund operation plans when selecting GPs for the Fund of Funds. It manages the performance of fund-of-funds investments with key indicators such as amounts recovered and IRR.
Some warn that under the current evaluation system, long-term investment in technology corporations—where early losses are inevitable—could be discouraged. SpaceX's listing has fueled this discussion.
SpaceX took 24 years from its founding in 2002 to its listing. In 2008, repeated launch failures and uncertain commercial viability led to widespread skepticism. But it succeeded in going public on the back of private capital that waited for long-term exits and early government support. It is cited as a case showing that evaluations focused on past investment performance such as IRR alone have difficulty fully reflecting the value of technology corporations, where future growth potential is critical.
A venture industry official said, "Managers have to show performance on existing investments to raise their next funds, and investment professionals are relatively incentivized to favor faster-exit deals under current performance evaluation and compensation structures," adding, "For areas that require long time horizons, such as national strategic technologies, the current evaluation system does not fit."
Because of this, voices in the industry say it is time to move away from exit-record-centered evaluations. They argue for a separate evaluation system that reflects technology difficulty, potential to create industries, founder capabilities, and long-term growth.
Along with introducing ultra-long-term technology funds by extending fund maturities, there is also a call to design policy finance that goes beyond supplying capital to share risks in the pre-commercialization stage of technology. The U.S. government, through NASA, supported funding during the development stage and provided early markets and demand, easing the investment burden on private capital.
Recently, the Financial Services Commission has also been pushing to create an ultra-long-term technology investment fund through the Public Growth Fund to induce long-term investment. The plan includes extending the investment period from the current five years to seven and the fund life from 10 years to 15. It also includes excluding exits within three years after investment from the primary investment performance metrics. This is seen as a policy attempt to encourage long-term technology development over short-term exits.
Kim Hong-il, CEO of K-Unicorn Investment, said, "Innovation for the future is created not by the older generation but by those who are curious," adding, "It is wrong to evaluate venture capital (VC) investment professionals or mentors as if they lead innovation."
Kim added, "Policies such as requiring investments for more than three years to induce long-term investment are the right direction."