Korean gov’t pledges additional $7.9 bn for startups amid fund squeeze

The South Korean government will spend an additional 10.5 trillion won ($7.9 billion) to shore up the country’s startups and venture capitalists grappling with an investment drought amid lingering fears of a global recession from high inflation and interest rates.

The government has announced an additional investment to help startups escape “death valley” amid liquidity shortages caused by interest rate hikes and lingering financial market uncertainty, Financial Services Commission (FSC) Chairman Kim Joo-hyun said during a news briefing on Thursday with Lee Young, minister of the SMEs and startups ministry.

The slowdown in the initial public offering market also has hindered venture capitalists from cashing in on their investments, causing investors to hunker down even further, said Kim.

According to the FSC, VC investments in the first three months of this year plunged 60.3% from the same period last year.

The latest financial support for startups comes after the government in January announced an investment of 80 trillion won in the country’s SMEs and startups.

EARLY STAGE STARTUPS TO GET MORE SUPPORT

Of the new total financial support, 6.1 trillion won is allocated to help early stage startups turn their innovative technologies and ideas into tangible results generating profits, with 4.7 trillion won on R&D spending.

More mature startups, having completed a Series C funding round, will be eligible for 1.9 trillion won, while 400 billion won will be spent on grooming late-stage startups into unicorns with valuations above $1 billion.

Policy financial institutions will form 2.1 trillion won worth of funds over the next three years, of which more than 2 trillion won will be invested by the Industrial Bank of Korea to foster cutting-edge technologies and strategically important industries.

The financial authorities will also set up a 1 trillion won secondary fund through policy financial institutions to help VCs liquidate funds upon maturity so they can make new investments.

To make it easy for banks to engage in VC investment actively, the government will seek to up the banks’ investment cap on venture funds from the current 0.5% of equity capital to 1%.

REGULATION REVAMPS

The government’s latest measures also include steps to ease regulations to rejuvenate the startup and VC industries.

It will seek to introduce a dual-class share system to ensure the growth of startups without concerns about share dilution even after investment, which VCs have long advocated. The one-share-one-vote system is currently allowed in Korea.

It will also review abolishing a sunset clause in the county’s special law for ventures to ensure stable investment in startups and their operations.

Write to Joo-Wan Kim at kjwan@hankyung.com

Sookyung Seo edited this article.