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South Korea's Venture Capital Market Rebounds Faster Than Global Peers

Photo by Harry Cunningham / Unsplash

Sejong, South Korea - A recent report by South Korea's Ministry of SMEs and Startups (MSS) provides an in-depth look at the country's venture capital (VC) market, highlighting its recovery trends and strategic shifts in investment focus. 

This analysis is critical to understanding South Korea's VC market dynamics, especially in the context of global economic fluctuations.

Why It Matters: 

  • South Korea's VC market is showing signs of recovery, which is significant in the context of global economic trends.
  • The shift in investment focus from pandemic-driven sectors to high-tech areas aligns with the government's industrial strategy, indicating a strategic realignment of investment priorities.
  • The recovery and growth of the VC market have implications for the broader economy, affecting innovation, employment, and economic growth.

The Key Points

  • South Korea's cumulative VC investment reached KRW 7.7 trillion ($5.8 billion) in the first three quarters of 2023, down 27% year-on-year in dollar terms but outpacing declines in other major markets.
  • Investment has increased for three consecutive quarters, with Q3 investment up 24% year-on-year.
  • There is a shift in investment focus from pandemic-driven sectors to high-tech areas such as batteries, displays, and semiconductors.
  • Policy changes, including relaxed financial regulations and new tax credits, facilitate this recovery and growth in the VC market.

What they are saying:

The Ministry of SMEs and Startups credits policy initiatives like financial deregulation and new tax credits for fueling the rebound. 

It put forward proposals to improve oversight and incentives around fundraising and investing.

The Bottom Line:

While positive, analysts say VC flows may take until 2024 to regain 2020-21 levels. Volatility in global markets remains a risk factor.

Going deeper:

The rebound comes as investors move on from biotech and remote-centric companies that benefited during COVID-19.

Areas such as batteries, displays, and semiconductors are attracting more interest, in line with government industrial plans prioritizing high-tech hardware development.

Relaxed regulations on bank commitments to VC funds and new tax credits are aimed at stimulating investment and fundraising.

The government aims to mobilize more capital through a KRW 2 trillion seed fund program and an expanded fund-of-funds model.