Venture Investment and Fund Formation Both Surpass 4 Trillion Won for the First Time in the First Half of the Year

[Asia Economy Reporter Donghyun Choi] Venture investment and fund formation both surpassed 4 trillion won in the first half of this year, marking the highest performance ever recorded for the first half of a year.

According to the Ministry of SMEs and Startups on the 28th, venture investment in the first half of this year totaled 4.0061 trillion won. This represents a 24.3% (782.1 billion won) increase compared to the previous record set in the first half of last year (3.224 trillion won). It is the first time since statistics began that venture investment has exceeded 4 trillion won in the first half of a year.

The number of investment deals (2,815), investment amount per deal (1.42 billion won), number of invested companies (1,350), and investment per company (2.97 billion won) in the first half of this year were also confirmed to be the highest ever for the first half. Compared to the global venture investment contraction due to interest rate hikes, the domestic venture investment market is maintaining a relatively robust investment trend.

Looking at investment performance by quarter, investment in the first quarter of this year recorded 2.1802 trillion won, a 65.3% (861.5 billion won) increase compared to the previous first quarter record of 1.3187 trillion won set last year. This is the first time investment has exceeded 2 trillion won in the first quarter.

In the second quarter of this year, due to external economic uncertainties such as the U.S. Federal Reserve's interest rate hikes and the prolonged Ukraine war, venture capitalists took a cautious stance on investments, resulting in a 4.2 percentage point decrease compared to the second quarter of last year.

Examining venture investment by industry in the first half of this year, the top three sectors?Information and Communication Technology (ICT) services, distribution & services, and bio & medical?received 2.9288 trillion won, accounting for 73.1% of total venture investment. This proportion is similar to the 73.6% recorded in the first half of last year, but there were changes in the share held by each sector. The ICT services sector, which has attracted attention during the digital transformation period even after COVID-19, recorded the highest increase in investment amount (609.3 billion won) and growth rate (69%), receiving the largest investment among all sectors at 1.4927 trillion won. On the other hand, investment in the bio & medical sector decreased as venture capitalists took a cautious stance due to the recent decline in stock prices of listed bio companies and sluggish bio company listings.

Based on the first half of the year, the number of companies attracting investments of 10 billion won or more was below 30 from 2018 to 2020, but increased to 62 last year and 91 this year, rising by about 30 companies annually.

Fund Formation Also Hits Record High in First Half... 4.4344 Trillion Won Scale

Following venture investment, the first half of this year saw the formation of 176 funds totaling 4.4344 trillion won, the highest ever for the first half. This is a 55.9% (1.59 trillion won) increase compared to the same period last year. It is the first time fund formation has exceeded 4 trillion won in the first half.

Looking at fund formation by quarter, fund formation in the first quarter of this year reached 2.6612 trillion won, a 68.8% (1.0849 trillion won) increase compared to the previous first quarter record of 1.5763 trillion won last year, marking the first time fund formation exceeded 2 trillion won in the first quarter. The second quarter also saw 1.7732 trillion won in funds formed, a 39.8% (505.1 billion won) increase compared to the previous record set in the first quarter of last year (1.2681 trillion won).

Examining the investors in newly formed venture funds in the first half of this year, policy finance investments such as the Korea Fund of Funds increased by 0.8% (6.5 billion won) year-on-year to 800.5 billion won, accounting for 18.1% of total investments. Private sector investments increased by 77.2% (1.5835 trillion won) year-on-year to 3.6339 trillion won, accounting for 81.9% of total investments, indicating that private-sector-led venture fund formation drove the record high fund formation in the first half.

Looking at policy finance investments, Korea Fund of Funds investments in the first half of this year amounted to 293.2 billion won, a 34.4% (153.7 billion won) decrease compared to the same period last year. This is expected to recover as the Korea Fund of Funds sub-funds selected this year begin to be formed in earnest.

Other policy institutions invested 159 billion won, down 10.5% (18.6 billion won) year-on-year, while Growth Finance invested 348.3 billion won, up 105.5% (178.8 billion won) year-on-year.

In the private sector, investments from financial institutions such as commercial banks surged, with financial institution investments increasing 185.1% (726.3 billion won) year-on-year to 1.1186 trillion won, accounting for about one-quarter (25.2%) of total investments.

Individual investments also rose 86.5% (396.9 billion won) year-on-year to 855.8 billion won. This reflects the high interest individuals, who have been actively participating in the stock market recently, have in venture funds.

Gwon Young-hak, Director of the Investment Recovery Management Division at the Ministry of SMEs and Startups, said, "It is encouraging that venture investment and fund formation recorded the highest first-half performance ever amid a global investment sentiment contraction due to high interest rates and inflation," but added, "There are concerns as the second quarter performance this year decreased compared to the second quarter of last year, so we are closely monitoring investment market trends." He continued, "We will supply policy funds through the Korea Fund of Funds and introduce private venture mother funds to promote the inflow of large-scale private capital into the investment market."

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