Seoul to run $3.9 billion fund for startups over 4 years

The local government of South Korea’s capital city Seoul this year will launch its own vision fund, dubbed the Seoul Vision 2030 Fund, to invest 5 trillion won ($3.9 billion) in startups over the next four years, a move that is expected to promote the private sector’s investment amid dwindling venture capital.

Seoul will start to pool capital this year to form a 5 trillion won fund, which would be the largest-ever fund organized by a regional government in Korea for SMEs and startups if it is successfully formed, according to multiple reports on Monday by The Korea Economic Daily.

The new fund by the Seoul Metropolitan Government will invest in six sectors, including scale-up funding worth 1.4 trillion won to create one of the world’s top five startup ecosystems.

The Seoul city government is expected to use capital from its existing SME growth fund to invest 350 billion won in the Seoul Vision 2030 Fund. It has already earmarked 40 billion won in its annual budget for it and plans to use money from its fiscal stabilization fund composed of city income and deposits, as well as the general budget and returns from its previous fund investments. The new fund is set to expire in 2030 after running from 2026.

Startups welcome the move as they have been struggling with depleting venture capital investment amid looming global recession fears due to ongoing aggressive monetary tightening moves by central banks across the globe to calm inflation. The weaker Korean currency value against the US dollar also dented investment in Korean startups.

RATE HIKES, FALLING VC

According to Korea’s Ministry of SMEs and Startups, the country’s venture capital investment in 2022 decreased 11.9% or 916.2 billion won from 2021. Especially, in the second half of last year when global monetary tightening accelerated, venture capital investment shrank by 1.8 trillion won on-year.

 A public bid for capital from this year’s first fund of funds more than doubled from last year amid ongoing streamlining by the central government and the private sector, said an unnamed official from the venture capital industry.

If the Seoul city government’s new startup fund is successfully launched, it is expected to encourage the private sector to resume investment in startups, industry observers expected.

The new regional funding by Seoul comes after the city government successfully pooled more than 2 trillion won for another fund of funds that invested 645.1 billion won for four years until last year in 470 startups and SMEs that develop innovative digital technologies and engage in other promising sectors such as the content business. The city government initially invested 175.1 billion won in the fund, later joined by growth funds and other investors.

Write to Young-yeon Kang at yykang@hankyung.com

Sookyung Seo edited this article.