Q3 Venture Investment Down 40% Year-on-Year

Venture Investment of 5.4 Trillion Won in Q1-Q3 This Year

[Asia Economy Reporter Kim Cheol-hyun] Venture investment performance in the third quarter of 2022 was recorded as a 40.1% decrease compared to the same period last year. The global deterioration of venture investment sentiment due to prolonged uncertainty and interest rate hikes is becoming evident in the domestic venture investment market as well.

On the 27th, the Ministry of SMEs and Startups (Minister Lee Young) announced the results of venture investment and venture fund formation from the first to the third quarter of 2022. According to the ministry, venture investment performance from the first to the third quarter of this year totaled KRW 5.3752 trillion. This is a 1.1% increase compared to the previous record high of KRW 5.3153 trillion in the first to third quarters of 2021. The number of investment deals (4,033) and the number of invested companies (1,917) were also confirmed to be the highest ever for the first to third quarters.

Looking at the investment performance by quarter, investment in the first quarter of this year was KRW 2.2116 trillion, a 67.7% increase compared to the previous first quarter record of KRW 1.3187 trillion in 2021. Investment in the second quarter was KRW 1.9111 trillion, a 0.3% increase compared to the second quarter of 2021 (KRW 1.9053 trillion), but the growth rate compared to the same quarter last year slowed down compared to the first quarter. Investment in the third quarter recorded KRW 1.2525 trillion, a 40.1% decrease compared to the third quarter of 2021.

Examining venture investment by industry, the top three sectors?Information and Communication Technology (ICT) services (36.4%), distribution and services (18.5%), and bio and medical (16.4%)?accounted for 71.3% of total venture investment. Their share was similar to 73.0% in the first to third quarters of 2021, but there were differences in the increase and decrease patterns by sector. Investment in the ICT services sector, which has been spotlighted during the digital transformation period even after COVID-19, increased by KRW 385.9 billion (24.6%) to KRW 1.9572 trillion, showing the highest investment amount and increase among all sectors. Investment in the bio and medical sector was KRW 878.7 billion, remaining a top investment sector, but investment decreased by 27.4% due to uncertainties in the exit market such as the recent decline in stock prices of listed bio companies and strengthened criteria for technology-special listing.

Investment in early-stage startups (less than 3 years old) from the first to third quarters of 2022 was KRW 1.5633 trillion, a 28.1% increase compared to the same period last year. Accordingly, the proportion of early-stage startup investment in total venture investment rose by 6.1 percentage points to 29.1% compared to the same period last year. As the market experiences a decline in company valuations, venture capitalists' preference for early-stage startups, where price negotiations are relatively easier and high returns can be expected in the mid to long term, has increased, leading to a rise in venture investment in these companies. Investment in mid-stage and late-stage companies decreased by 10.4% and 1.7%, respectively, compared to the same period last year.

Follow-up investment from the first to third quarters of 2022 amounted to KRW 3.8643 trillion, a 0.6% increase compared to the same period last year. The proportion of follow-up investment in total venture investment from the first to third quarters was 71.9%, slightly down from the same period last year. Looking at follow-up investment by quarter this year, a decreasing trend was observed. This is interpreted as reflecting the recent preference of venture capitalists for early-stage startups.

Among companies that received venture investment from the first to third quarters of 2022, the number of companies that attracted investments of KRW 10 billion or more during this period reached a record high of 120, an increase of 15 companies compared to 105 in the same period last year. However, the number of companies newly reaching KRW 10 billion or more in annual investment attraction in the third quarter was only 22.

From the first to third quarters of 2022, 278 venture funds were formed with a total size of KRW 7.0517 trillion, marking the highest number of funds and fund formation amount for the first to third quarters ever. Looking at fund formation by quarter, the first, second, and third quarters all surpassed the previous record set in the same quarters of 2021. Fund formation in the first quarter of this year increased by more than KRW 1 trillion (69.1%) compared to the first quarter of 2021, reaching KRW 2.6646 trillion, surpassing KRW 2 trillion for the first time in a first quarter. The second quarter also saw fund formation increase by 40.7% compared to the previous record in the second quarter of 2021, reaching KRW 1.7867 trillion. The third quarter saw a slight increase compared to the previous record in the third quarter of 2021, with KRW 2.6004 trillion in funds formed, but the growth rate showed signs of slowing.

Examining the status of investors in venture funds formed up to the third quarter of this year, policy finance investments such as the Korea Fund of Funds amounted to KRW 1.5687 trillion, similar to the same period last year, accounting for 22.2% of total investments. Private sector investments increased by 41.8% compared to the same period last year to KRW 5.483 trillion, accounting for 77.8% of total investments. Individual investments increased by 19.4% compared to the same period last year to KRW 1.0869 trillion, more than six times the amount in 2018. This is interpreted as individuals actively participating in venture fund investments as their financial investment capabilities have improved along with growing interest in venture investment, while actively participating in the stock market recently.

Minister Lee Young said, "Although venture investment and venture fund formation from the first to third quarters recorded all-time highs, venture investment sentiment is becoming conservative due to complex economic risks such as high interest rates, high inflation, and high exchange rates." He added, "In response, the Ministry of SMEs and Startups will soon announce measures to strengthen the dynamism of the venture investment ecosystem, including plans to promote venture investment and expand domestic and foreign venture capital inflows."

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