South Korean government slashes fund of funds budget by 40% on-year

The South Korean government is facing a backlash from the startup and venture capital sectors after slashing next year’s fund of funds budget. 

The Ministry of SMEs and Startups announced Wednesday that it allocated 313.5 billion won ($234 million) to next year’s budget for the country’s multi-manager investment, a whopping 39.7% plunge from this year’s 520 billion won ($388 million). 

Compared to 2021, the figure is more than a 70% nosedive. 

A fund of funds is a pooled investment that injects capital into other types of private funds, which funnels through the venture capital and startup ecosystem. 

The startup ministry’s Vice Minister Cho Ju-hyeon held a briefing on next year’s budget proposal and said, “Thanks to the holdover from the previously formed funds, the next year’s budget could effectively cover the assisting of the startup industry.”

A day prior, SME and Startup Minister Lee Young stressed, “The industry will not be devoid of investment overnight simply because of decreased fund of funds budget next year.” 

DIFFERING EXPECTATIONS

But industry insiders think otherwise. 

The amount of investment that went into South Korea’s venture capital sector in the second quarter fell 4.2% from the same period the year before 1.83 trillion won ($1.36 billion), the first quarterly decline since the second quarter of 2020. 

“The startup ecosystem can develop further with public financing during an economic downturn,” a venture capital firm CEO told The Korea Economic Daily. 

The industry insider added, “While the private sector should lead the venture capital investment in the long run, the size of government-managed fund of funds should also be maintained.”

A CEO of an artificial intelligence startup said, “Startups that have been in business for about three to four years are especially suffering from liquidity concerns in recent years.”

In related news, the budget for the government-run Tech Incubator Program (TIPS) increased from this year’s 293.5 billion ($218 million) to 378.2 billion won for 2023.

Seoul will assist 720 startups next year from the current 500. 

The TIPS program will also establish the Deep Tech track next year, which serves startups in the industries of the future such as artificial intelligence, aerospace, and more. 

Those selected for the newly established track will receive up to 1.5 billion won for the next three years. 

Write to Joo-Wan Kim, Jong-Woo Kim at kjwan@hankyung.com
Jee Abbey Lee edited this article.