Polarization in Venture Investment Last Year... Cold Wind for Early Startups, Hot for Later-Stage Ones

Last year, domestic venture investment in South Korea totaled 11.9 trillion won, marking a successful rebound. However, more than half of the investment funds were concentrated in late-stage startups over seven years old, while investment in early-stage startups actually decreased. Although the global venture investment market remained stagnant, domestic venture investment showed a relatively rapid recovery, but the analysis indicates that investment concentration by company age is intensifying.

On the 12th, the Ministry of SMEs and Startups (MSS) announced the '2024 Domestic Venture Investment and Fund Formation Trends,' which included performance data from venture investment companies and new technology business finance companies (new technology finance firms).

Last year, the total venture investment amount was recorded at 11.9 trillion won, a 9.5% increase from the previous year, breaking away from the declining trend since 2021 and achieving a rebound after three years. Considering that the global venture investment scale (480 trillion won) showed almost no change compared to the previous year during this period, the MSS interprets this as a clear recovery trend compared to the global market.

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Although the overall investment scale increased, investment in early-stage startups significantly decreased. Investment in startups within three years of establishment last year was 2.2243 trillion won, down 17% from the previous year. In contrast, investment in late-stage startups over seven years old increased by 23.3% to 6.3663 trillion won. Mid-stage startups with 3 to 7 years of operation attracted 3.3551 trillion won, a 9.3% increase from the previous year.

Kim Bong-deok, Venture Policy Officer at MSS, analyzed, "It seems that investments are concentrated on projects with higher chances of success, even if the returns are lower, rather than early investment companies that require a long wait until an initial public offering (IPO)."

To revitalize investment in early-stage startups, MSS plans to provide incentives to sub-fund operators. Kim said, "We cannot mandate private funds to invest compulsorily, but if operators commit to focusing investments on early-stage companies, we plan to give additional points during the sub-fund selection process."

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Meanwhile, domestic fund formation amounted to 10.6 trillion won, a 19% decrease from the previous year. The number of funds formed also declined from 859 in 2023 to 811 last year. By investor type, private investments from general corporations, financial institutions, and venture capital (VC) decreased by 25.1% to 8.1324 trillion won compared to the previous year. In contrast, policy finance, including the Korea Fund of Funds, increased by 11.3% to 2.4226 trillion won during the same period.

Kim emphasized, "If the trend of interest rate cuts continues this year, venture investment formation is expected to increase further," but added, "We are closely monitoring the situation with awareness that the decrease in fund formation could lead to a contraction in future investments."

By industry, interest in artificial intelligence (AI) expanded, with investment in 'ICT Services' increasing by 38% year-on-year, recording the highest growth rate. It is known that over 70% of ICT services utilize AI technology. On the other hand, investment in 'Video, Performance, and Music' declined the most among industries, dropping 23.7%, influenced by the rapid growth of the online video service (OTT) market.

The MSS plans to accelerate the current recovery of the domestic venture investment market by announcing the entire 2025 MSS Korea Fund of Funds contribution budget (1 trillion won) in January to provide early seed money.

Oh Young-joo, Minister of MSS, stated, "Despite the challenging global market conditions last year, South Korea's venture investment scale has steadily grown. We will faithfully implement plans to advance into a leading venture investment market, ease regulations by reflecting voices from the field, and continuously strive to create a world-class venture investment ecosystem."

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