South Korean Venture Investments Decline in Q1 2023: Factors and Industry Impacts

South Korea’s Ministry of SMEs and Startups reported a 60.3% year-on-year decline in venture investment in Q1 2023, totaling KRW 0.9 trillion ($680 million).

Factors contributing to the decline include the ongoing economic slowdown, rising financing costs due to high-interest rates, increased uncertainty in the financial market, and a sluggish recovery market.

Nevertheless, despite the decline, venture investment in Q1 2023 increased by 13.2% compared to Q1 2019 and 14.0% compared to Q1 2020.

In comparison, the global venture investment performance declined by 55.1% in the US and 73.6% in Israel over the same period.

However, excluding two significant investments, such as the KRW 13 trillion mega-deal for OpenAI, the decline in the US was 75.1%.

Experts attribute the decline to shrinking liquidity due to short-term interest rate hikes by monetary authorities, a potential economic slowdown, and increasing uncertainty in the financial markets.

The entertainment industry attracted more investment year-on-year as demand for K-content continues to grow.

On the other hand, the ICT services, distribution and services, games, and biomedical sectors saw significant declines in investment.

Medium-sized companies (3 to 7 years old) saw the most significant drop in investment, while early-stage and late-stage companies were less affected.

Venture fund formation in the first quarter of 2023 amounted to KRW 0.6 trillion, down 78.6% year-on-year, down 13.8% from the first quarter of 2019, and up 12.2% from the first quarter of 2020.

Minister Lee stated that high-interest rates, high inflation, and global financial institution risks contribute to the contraction of venture investment globally.

Therefore, the government plans to announce measures to support the entire ecosystem, including funding for ventures and startups and efforts to strengthen competitiveness.