"Nearly 10 Trillion Won in Q1 Alone"... Financial Authorities to Strengthen Venture Capital and Exit Market

Securities Industry Venture Capital Capacity Enhancement Council Held
Discussions on Building an Intermediary Platform and Supporting the Exit Market

Thanks to the government's push for 'productive finance,' large securities firms supplied nearly 10 trillion won in venture capital during the first quarter of this year. The financial authorities plan to establish a venture capital intermediary platform by July, while also preparing to inject liquidity of about 1 trillion to 2 trillion won into the exit market. Additionally, there will be institutional improvements, such as strengthening incentives for securities firms specializing in small and medium-sized enterprises (SMEs).

On the afternoon of May 7, the Financial Services Commission (FSC) announced that Vice Chairman Kwon Daeyoung presided over a meeting of the 'Securities Industry Venture Capital Capacity Enhancement Council' at the Korea Financial Investment Association in Yeouido. The event was attended by seven comprehensive investment finance companies, including Korea Investment & Securities, eight SME-specialized financial investment companies designated for the 5th term, and representatives from related organizations.

Vice Chairman Kwon remarked, "It is time to objectively reflect on whether the record-breaking profits of the securities industry over the past few years are based on insight and capability, or whether they are a result of external factors such as liquidity and the semiconductor cycle—a windfall." He added, "The very purpose of the securities business is to identify the growth potential hidden behind risks and to create new added value, which is the first step toward productive finance."

Venture Capital Supply by Comprehensive Investment Finance Companies Reaches 9.9 Trillion Won in Q1...Up 25.7% from Previous Quarter

According to the FSC, the total venture capital supplied by the seven comprehensive investment finance companies required to do so reached 9.9 trillion won in the first quarter, an increase of 2 trillion won (25.7%) compared to the previous quarter. The average venture capital supply ratio to the amount raised through promissory notes and IMAs was 17.3%. This far exceeds the mandatory ratio of 10% set for the year 2026. All seven firms—Korea Investment & Securities, Mirae Asset Securities, NH Investment & Securities, KB Securities, Hana Securities, Kiwoom Securities, and Shinhan Investment & Securities—exceeded the required ratio.

By investment target, the largest recipients were mid-sized companies (4.5 trillion won), P-CBOs (2.3 trillion won), SMEs and venture companies (2.1 trillion won), debt securities rated A or lower (1.4 trillion won), and new technology venture capital companies (1.3 trillion won). In terms of investment method, debt securities accounted for 7.1 trillion won, equity securities 3.1 trillion won, new types of securities such as RCPS and CBs 2 trillion won, and loan receivables 1.3 trillion won.

At the meeting, best practices for venture capital supply by each comprehensive investment finance company were also shared. Korea Investment & Securities reported that when a fund investing in RCPS of a domestic fabless artificial intelligence (AI) semiconductor startup matured, the company directly acquired the RCPS from existing holders to facilitate exit and contributed to the growth of the national strategic high-tech industry. Kiwoom Securities noted that it supported companies at various growth stages: from investing in an early-stage scaling-up fund for an AI rare disease diagnostics company, supporting its listing under the technology exception system, to participating in subsequent rounds of global fundraising for business expansion.

Up to 2 Trillion Won to Be Supplied to the Exit Market... "Changing the IPO-Centric Structure"

Measures to strengthen the venture capital capabilities of the securities industry were also discussed. Firstly, the financial authorities will establish a platform that aggregates and matches information between capital seekers (companies) and providers (securities firms, venture capitalists). The Financial Supervisory Service is currently providing consulting support, with a goal to launch the platform in July.

The financial investment industry is also planning a joint secondary investment of about 1 trillion to 2 trillion won to vitalize the exit market. Detailed operational plans are expected to be finalized by June. An FSC official stated, "The need to activate the exit market continues to be raised amid the ongoing expansion of productive finance and venture capital supply. In Korea, the exit system is excessively focused on IPOs, which has been identified as a bottleneck in the venture and startup ecosystem. Therefore, diversifying exit channels, such as mergers and acquisitions (M&A) and secondary transactions, is urgently needed."

In addition, considering the recent sharp increase in the absolute scale of leveraged investments such as margin loans, risk management by individual securities firms will also be strengthened. Each company, under the leadership of its CEO, will re-examine the trends in leveraged investment and the status of risk management, and consider additional measures as needed.

Incentives for SME-Specialized Securities Firms Strengthened... More Firms to Be Designated

At the council meeting, the FSC also revealed plans to improve the system related to SME-specialized securities firms. Ahead of the 6th round of designations in June, the main points are to increase the number of designated companies and further strengthen incentives. Through this, the authorities aim to nurture boutique securities firms specializing in corporate finance and to facilitate funding for SMEs and venture companies. Since 2016, the financial authorities have designated around eight SME-specialized securities firms every two years and have supported them with incentives from policy financial institutions and others.

Specifically, the authorities will extend the designation cycle for SME-specialized securities firms from the current two years to three years, thereby increasing predictability and incentives for providing medium- to long-term capital. The number of designated companies will also be increased from around eight to around ten.

In addition, incentives will be strengthened by extending the maturity of securities-backed loans to a maximum of three years and introducing preferential rates for term repurchase agreements (RPs). Korea Development Bank and Korea Growth Investment Corp. plan to establish a dedicated fund for SME-specialized securities firms in 2027, and when selecting fund managers, the scoring advantage for SME-specialized securities firms will be increased by more than 50%. Industrial Bank of Korea will also significantly increase its investment in funds established by SME-specialized securities firms from 26.5 billion won in the 5th round to over 100 billion won in the 6th round.

Furthermore, improvements to the evaluation criteria for the selection process will be promoted to enhance fairness. An FSC official explained, "The revised operational guidelines and evaluation criteria will apply from the 6th round of designations, and in the case of strengthened incentives, each institution will immediately take follow-up actions."

Vice Chairman Kwon emphasized, "The industry must proactively identify and fulfill the tasks required by Korea’s capital market. Leading the supply of liquidity to the 'exit market,' which has been identified as a major bottleneck in the venture ecosystem, or concentrating investments in innovative technologies and industries that could become 'game changers'—as exemplified by successful Silicon Valley investments—can be the strategic direction."

He also cautioned, "The repeated complaints of liquidity difficulties by the securities industry in times of crisis must not recur. The industry must be thoroughly prepared to manage the risks arising from the interaction of newly added functions such as promissory notes and IMAs, and must remain extremely vigilant about the recent increase in leveraged investments."

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