Venture Investment and Fund Formation in Q1 This Year Fall Short of 1 Trillion Won

Venture investment in the first quarter, which had reached trillions of won over the past two years, fell short of 1 trillion won this year. It appears that the investment market is rapidly deteriorating due to adverse factors such as increased funding costs caused by high interest rates, expanded financial market uncertainty, and a slowdown in the real economy.

The Ministry of SMEs and Startups announced the '2023 Q1 Venture Investment and Fund Formation Trends' on the 17th. Venture investment in the first quarter of this year was recorded at 881.5 billion won, a 60.3% (1.3399 trillion won) decrease compared to the same period last year. The number of investment cases also dropped by 41.7%, from 1,520 to 885 during the same period.

By industry, the distribution and service sectors saw the largest decline in investment compared to the same period last year, down 77.5% (354.2 billion won). This is analyzed to be due to a decrease in demand following the easing of COVID-19 restrictions, which slowed growth potential. It is also possible that companies lacking short-term financial performance faced difficulties in attracting investment. The video, performance, and music sectors were the only ones to attract more investment than the previous year, increasing by 8.5%. This appears to be a benefit from the rising demand for K-content.

Looking at investment status by company age, investment in 'mid-stage' companies (over 3 years and up to 7 years old) decreased the most. It plummeted by 725.7 billion won (-71.1%) compared to the same period last year. It is estimated that these companies were relatively less preferred compared to early-stage companies (3 years or less), whose corporate value is undervalued amid difficulties in follow-up investment and sluggish exit markets, or late-stage companies (over 7 years old), which have a higher likelihood of investment recovery in a short period.

The overseas investment market was also challenging. Global venture investment performance in the first quarter of this year decreased by 55.1% in the United States and 73.6% in Israel. In the U.S., excluding two mega deals including the 13 trillion won-scale mega deal for OpenAI, the developer of the 'ChatGPT' service, the investment decline rate was about 75.1%.

Domestic new fund formation also showed poor performance. The size of venture funds formed in the first quarter of this year was 569.6 billion won, a sharp drop of 78.6% (2.0972 trillion won) compared to the same period last year. The number of funds formed during the same period also fell by more than half, from 93 to 43. It appears that private investors have taken a conservative stance on investing in venture funds during the investment winter.

Lee Young, Minister of SMEs and Startups, stated, "Venture investment contraction is occurring worldwide due to a complex crisis including high interest rates, high inflation, and risks in global financial institutions," adding, "We plan to soon announce measures to provide robust support across the entire ecosystem, including funding support for ventures and startups and ways to strengthen competitiveness."

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