[Venture Drought]③Venture Market Faces 'Funding Drought to Capital Flood'... Concerns Over Side Effects Already Emerging

Lee Jaemyung Administration Vows to Usher in a "Third Venture Boom"
Expansion of Parent Fund, National Growth Fund, and BDC Introduction
Venture Market Flooded with Capital, Raising "Bubble" Concerns
Calls for "Revitalizing the Exit Market" and "

Editor's NoteThe Lee Jaemyung administration is increasing the budget for startup and venture development while introducing various policies to expand investment. However, the 'funding drought' for early-stage startups persists, and the 'rich-get-richer' phenomenon among venture capital (VC) firms has intensified. This article examines the current realities of the venture investment market, which is struggling through a difficult period, and explores potential solutions.

With expectations of a large influx of capital into the venture investment market in 2026, anticipation is growing for a 'third venture boom.' The establishment of a 150 trillion won National Growth Fund, the introduction of Integrated Investment Accounts (IMA), and Business Development Companies (BDC) are gaining momentum, leading analysts to predict that the prolonged 'funding drought' could quickly turn into a 'flood of capital.'

However, there are simultaneous concerns in the market that a 'valuation bubble,' where company values are excessively inflated compared to actual performance-as seen in certain sectors during the 'second venture boom' around 2020-could be repeated. In particular, there are growing worries about a bubble in the artificial intelligence (AI) sector, which has recently attracted concentrated investment.

Na Jeonghwan, a researcher at NH Investment & Securities, explained in a report, "Next year, government-led funds of funds will flow into venture funds, and investments from the National Growth Fund will also be executed, serving as a catalyst for private venture investment." He added, "In particular, funding is being concentrated in high-growth industries such as AI, semiconductors, mobility, and biotech."

The Nightmare of the 2020 'Platform Bubble'

During the second venture boom around 2020, the platform sector was the biggest beneficiary, coinciding with the global COVID-19 pandemic. Even single-service applications were marketed as 'platforms' and recognized with high valuations, but as growth limitations became apparent, the bubble quickly burst.

The most representative case is Balan, an online luxury platform currently undergoing rehabilitation proceedings. Balan was valued at 300 billion won during its Series C round in 2022, but after experiencing delays in settlement payments earlier this year, the company eventually entered court receivership. According to Taesung Accounting Corporation, Balan's liquidation value was estimated at only 2.08 billion won.

Many investors-including Mirae Asset Venture Investment, Shinhan Capital, Woori Venture Partners, Korea Growth Investment, Kolon Investment, and SBI Investment-invested tens to hundreds of billions of won, but the possibility of recovery has virtually disappeared.

Clear AI Investment Concentration

There are growing concerns in the market that once capital is fully released next year, a valuation bubble could reoccur. In particular, the concentration of funds in the AI sector-which continues to be the subject of bubble controversy globally-is likely to intensify.

According to The VC, which compiles domestic startup statistics, the number of startup investments in South Korea in the third quarter of 2024 decreased by 35% year-on-year to 296 deals, but the investment amount surged by 152% quarter-on-quarter to 2.4326 trillion won.

This phenomenon of 'surging investment amounts and declining deal counts' was largely driven by large-scale investments in semiconductor and AI companies. While the number of AI investment deals dropped by more than 40%, the total investment amount in AI actually increased by 35%. This is the result of not only investments in major companies such as Rebellions and Furiosa, but also an overall increase in valuations for AI companies.

A representative from The VC explained, "As of November this year, investments in AI startups have already reached about 96% of last year's total AI startup investment. If December investments are included, this year's AI startup investment volume is expected to surpass last year's total."

The same trend is being observed overseas. According to global market research firm PitchBook, global AI startups raised $73.1 billion (57.9% of total VC investment) in the first quarter of 2025. OpenAI's $40 billion fundraising marked the start of 'mega rounds' in the market, and this year's VC investment in AI companies is expected to exceed $200 billion.

The Need to Restructure the Exit Market

Experts have pointed out concerns that while capital is being supplied, investment exits are not being achieved properly. In South Korea, venture investment exits are effectively limited to initial public offerings (IPOs). There are calls for restructuring the exit market, including changes to listing review requirements.

According to a recent survey conducted by the Korea Chamber of Commerce and Industry and the Korea Venture Capital Association of 113 VC firms, 71.7% responded that 'it has become more difficult to recover investments compared to the past.'

In fact, from January to November this year, there were 73 new listings on KOSDAQ. This is expected to fall far short of last year's 111 new listings. If this trend continues, the number of new KOSDAQ listings will hit a five-year low. The KOSDAQ market serves as a gateway for venture companies and a source of venture capital.

As a result, there have been calls to revise listing review standards. Moon Yeojeong, Managing Director at IMM Investment, explained, "When going public, the exchange requires founders to maintain at least a 20% stake to defend management rights, and this is one of the reasons for inflated company valuations."

Moon further explained, "In the domestic venture market, IPOs are virtually the only exit option. If a founder's stake falls below 20%, an IPO becomes difficult, so in order to ensure IPO success, investors sometimes reluctantly accept relatively high company valuations."

A mid-sized VC CEO, who requested anonymity, said, "Although the KOSPI has risen significantly this year, the KOSDAQ has not. The sectors that have risen are mainly AI, robotics, and biotech. In terms of revitalizing the exit market, there is still a long way to go. Even if many funds are created, I am concerned about the future of the exit market in a few years."

In response, financial authorities recently announced 'measures to improve the IPO and delisting system,' which include ▲strengthening listing eligibility reviews ▲reforming the early exit system for underperforming companies ▲improving the designated auditor system ▲enhancing the reliability of technology-special listing evaluations, and other changes to the supervisory and review framework.

In this regard, Byun Younghoon, Head of Audit at Samjong KPMG, predicted, "Next year's IPO market will see a further strengthening of profitability-centered company valuation standards," adding, "The recovery of the global IPO market could gradually have a positive effect on the domestic market as well."

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