Venture Investment in the First Half of the Year Decreases by 17.3% Due to COVID-19

Ministry of SMEs and Startups Analyzes Job and Investment Trends in First Half of This Year
Venture Investment Reaches 1.6495 Trillion Won in First Half

Minister Park Young-sun of the Ministry of SMEs and Startups is briefing on the "Innovation Venture and Startup Job and Investment Trends for the First Half of 2020" at the Government Seoul Office Building on the 4th.

[Asia Economy Reporter Kim Daeseop] Venture investment and venture fund formation in the first half of this year decreased compared to the same period last year. The decline was influenced by a reduction in the discovery of investee companies due to the novel coronavirus disease (COVID-19) and the stagnation of related industries.

According to the Ministry of SMEs and Startups on the 4th, the analysis of the "Innovation Venture and Startup 2020 First Half Job and Investment Trends" showed that venture investment in the first half of the year decreased by approximately 17.3% compared to the same period last year. It was recorded at 1.6495 trillion KRW, down 344.8 billion KRW from the previous year.

Investment in the first quarter of this year was similar to the same period last year, but investment in the second quarter sharply dropped by 347.3 billion KRW, leading to an overall decrease in first-half investment. This is understood to be due to a sharp decline in the discovery of investee companies by venture capital (VC) firms starting from February, the early phase of COVID-19 spread, with a typical 2-3 month lag from discovery to investment, resulting in reduced investment in the second quarter.

By industry, due to recent policies on materials, parts, and equipment, investment in information and communication technology (ICT) manufacturing, electrical, mechanical, and equipment, and chemical and materials sectors increased in the first half compared to the same period last year. However, investment in bio-medical, video/performance/music, and distribution/service sectors decreased due to reduced discovery of investee companies and stagnation in related industries caused by COVID-19.

Investment in the non-face-to-face sector in the first half of this year recorded 769.1 billion KRW, a 6.5% decrease from the same period last year. However, the proportion of investment in the non-face-to-face sector within total venture investment in the first half increased by 5.4 percentage points from the previous year to 46.6%.

Venture fund formation in the first half of this year also decreased by about 16.4% compared to the same period last year. It was recorded at 1.1388 trillion KRW, down 223.9 billion KRW from the previous year. Analyzing the funds formed in the first half by investor type, policy finance increased by 32.4% to 395.9 billion KRW compared to the same period last year, while private investment decreased by 30.2% to 742.9 billion KRW.

In particular, the first full survey on the employment status of about 37,000 venture companies showed that as of the end of June this year, employment information was available for 34,038 venture companies, with a total employment of 667,699 people. This is an increase of 27,319 people compared to the end of June last year. This figure is similar to the approximately 690,000 regular employees of Korea's four major conglomerates.

Considering the average number of employees (19.6) and the 3,485 companies that did not agree to provide employment information, the total employment is expected to exceed that of the four major conglomerates. The estimated employment status is over 730,000. Additionally, as of the end of June, the number of employed persons aged 15 and over decreased by 1.3% (352,000 people) compared to the same month last year.

Industries with both high employment growth scale and rate were information and communication (+10,792 people, 7.7%), manufacturing (+9,767 people, 2.4%), professional scientific and technical services (+3,507 people, 6.8%), and wholesale and retail trade (+1,744 people, 12.5%), accounting for 94.5% of total venture company employment growth.

The information and communication sector (7.7% increase) showed clear growth in gaming and the 4th industrial revolution fields. Manufacturing (2.4% increase) showed notable growth in materials, parts, equipment, and medical fields. Wholesale and retail trade (12.5% increase) was driven by companies related to non-face-to-face product brokerage, highlighting the growth of non-face-to-face companies.

The employment growth rate of non-face-to-face venture companies was 8.9% compared to the end of June last year, nearly three times higher than the 3.0% growth rate of face-to-face companies. The average employment change per company was also higher for non-face-to-face companies at 1.9 people compared to 0.5 people for face-to-face companies.

The employment status of companies that received venture investment in the first half of this year increased by 2,470 people to 21,953 compared to the end of December last year. Among companies that received venture investment in the first half, the average employment increase for face-to-face companies was 2.9 people, while non-face-to-face companies exceeded the overall average employment increase of 3.6 people with 4.3 people.

The employment creation effect per 1 billion KRW invested in the first half of this year was +1.5 people for face-to-face companies and +2.0 people for non-face-to-face companies. The employment creation effect relative to investment was also better for non-face-to-face companies. Looking at non-face-to-face sectors, employment increases were notable in the living consumption and foundational technology sectors compared to the end of December last year. In particular, the living consumption sector saw an increase of 622 employees in the first half.

According to the venture capital industry, there was almost no face-to-face contact for discovering investee companies in the first quarter of this year, but normal investment activities resumed from the second quarter.

The resumption of investee discovery activities by the VC industry from the second quarter is expected to lead to third-quarter investments with a typical 2-3 month investment lag, so investment is expected to recover in the third quarter. Additionally, the venture investment incentive system announced in April this year and the Venture Investment Promotion Act scheduled to be enforced on the 12th are also expected to contribute to the recovery of investment sentiment.

Park Young-sun, Minister of SMEs and Startups, said, "Investment in the second quarter sharply decreased due to difficulties in face-to-face contact with investee companies amid the COVID-19 situation. However, thanks to government policies and the venture capital industry's investee discovery activities, the decrease in investment in the third quarter is expected to be smaller than in the second quarter."

This content was produced with the assistance of AI translation services.