"Startup Mass Failures Threatened"‥Will the Mother Fund Budget Be Halved in Reality?

'520 Billion Won → 250 Billion Won' Mother Fund Budget May Be Halved
Minister Lee Directly Calls for Activation of Private Funds

[Asia Economy Reporter Kwangho Lee] Next year’s budget for the Korea Venture Investment Corp’s (KVIC) mother fund investment project is likely to be cut by about half compared to this year. The atmosphere suggests that the venture investment market’s financial lifeline is drying up, leading to a ‘financial blockage.’ Attention is focused on whether there will be changes in future investment projects.

According to industry sources on the 24th, next year’s mother fund budget is being discussed at around 250 billion KRW, roughly half of this year’s 520 billion KRW. The exact figure will depend on the preliminary review of the Ministry of SMEs and Startups’ budget proposal, but a reduction compared to this year has already been confirmed. Because of this, concerns have been raised that the so-called ‘Second Venture Boom’ enthusiasm may fade.

A Ministry of SMEs and Startups official said, “It is true that the mother fund budget is decreasing, but specific details have not yet been released.”

The mother fund budget has been steadily decreasing. It reached 1 trillion KRW in 2020, then 800 billion KRW in 2021, 520 billion KRW in 2022, and now 250 billion KRW is being discussed for 2023. Some believe the government is placing more emphasis on budgets related to supporting small business owners.

The mother fund is a policy fund aimed at revitalizing private venture investment. It operates by matching investments into venture funds (investment partnerships) established by venture capital (VC) firms. The Korea Venture Investment Corp manages the mother fund’s operations as a specialized investment management institution. It plays a catalytic role in private venture investment by forming various types of sub-funds according to policy objectives and making investments.

If the mother fund shrinks, the sub-funds also contract. Competition among venture capital firms (VCs) to secure limited policy funds next year is expected to intensify. However, there is a variable in the form of recovery funds. The money distributed through the mother fund has generated returns and grown, being reused as reinvestment capital for the mother fund. Nevertheless, concerns remain even considering this.

The problem is that private funds are drying up alongside policy funds. Venture capital firms that submitted investment proposals for the mother fund’s regular investment project in the first half of this year and secured the final delegated operator (GP) status are facing situations where they must extend the formation deadline because they cannot find private investors (LPs).

Meanwhile, Woori Bank, which plays a significant role in the private sector, is showing cautious movements regarding external investments. It cannot be ruled out that commercial banks, securities firms, and capital companies will also reduce their investments going forward. Because of this, the number of fund managers giving up not only new funds this year but also investments themselves is increasing.

The Ministry of SMEs and Startups also appears to be in a dilemma. An investment banking industry official said, “Minister Lee Young of the Ministry of SMEs and Startups is personally visiting financial companies located in Yeouido, asking them to release private funds,” adding, “However, it seems like this is not a problem that can be solved just by the minister’s visits.”

Recently, at the ‘1st Startup and Venture Policy Sharing Council’ held at Tipstown in Gangnam, Seoul, Minister Lee said, “The investment market cannot be driven by government leadership forever,” and “At some point, we need to signal a transition to a private-sector-led investment market and prepare various incentive plans.”

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