Corporate Venture Capital Investment in South Korea Reaches 31% of Total VC Investment, Startup Alliance Report Reveals
A recently published report by Startup Alliance titled “CVCs Korea: Status and Investment Revitalization Plan” has shed light on the significant size of corporate venture capital (CVC) investment in South Korea. According to the study, CVC investment accounted for a substantial 31% of the total venture capital investment in the country.
The report highlights that CVC refers to financial capital provided by general companies for investing in new businesses. Last year alone, CVC investment in South Korea reached an impressive 4.5 trillion won ($4.1 billion), maintaining its momentum despite a 17% decline in total venture capital investment due to the economic slowdown.
Types of CVC Operators in South Korea
CVC operators in South Korea can be categorized into two main types: independent corporations and internal departments. Independent CVC corporations, such as GS Ventures and Lotte Ventures, operate by establishing investment subsidiaries. On the other hand, companies like NAVER (035420) D2SF and Hyundai Motor Company (005380) Zero One fall into the ‘internal department CVC’ category, creating dedicated departments or allocating specialized workforce for venture capital investments. Notably, there are a total of 176 independent CVCs operating within Korea, excluding foreign entities.
Out of 82 major conglomerates, 52 (63%) have been confirmed to have invested in CVCs. This is particularly significant as, according to the principle of separation of finance and industry, general holding companies were previously not allowed to own CVCs. However, a revision in the Fair Trade Act at the end of 2021 has enabled these companies to establish CVCs and invest in promising start-ups. Additionally, seven out of 36 major independent CVCs were established after 2022.
Regulatory Suggestions to Foster Domestic CVC Investment
The report underlines the need to separate regulations for medium-sized companies and large corporations in order to stimulate domestic CVC investment. The current Fair Trade Act imposes certain restrictions that hinder CVC investment by mid-sized companies, while large corporations face comparatively fewer limitations. These regulations include holding a maximum of 100% of CVC shares by general holding companies, a debt ratio limit of 200%, a 40% cap on the share of external funds in the CVC investment fund, and a 20% limit on foreign investment. Startup Alliance emphasizes the necessity of policy support to revitalize CVC investments and enable mid-sized companies, which can leverage collaborations with startups to create strategic outcomes, to actively participate in CVC initiatives.
In light of these findings, Startup Alliance asserts that proactive measures are crucial to drive the growth of domestic CVC investments. They contend that mid-sized companies, which currently exhibit a passive stance towards CVC investments, require policy support to fully unlock their potential and contribute to the expansion of the start-up ecosystem.
A study was published showing that the size of corporate venture capital investment (CVC) is equivalent to 31% of total venture capital investment. CVC refers to financial capital for investment in new businesses by general companies.
On the 3rd, Startup Alliance announced this in its recently published report titled ‘CVCs Korea: Status and investment revitalization plan’, saying, “Last year, CVC investment scale reached 4.5 trillion won.” During the same period, as liquidity contracted due to the economic slowdown, total venture capital investment fell 17% from the previous year to KRW 14.3 trillion, but CVC continued to invest at the 2021 level.
The picture shows ‘Naver D2SF’ set up in Naver’s second building ‘1784’. / Naver
Depending on the capital operator, CVC is an independent corporation such as GS Ventures and Lotte Ventures, which operate capital by establishing investment subsidiaries, and ▲ NAVER (035420) D2SF, Hyundai Motor Company (005380) Zero One, etc. It is classified into ‘internal department CVC’, which creates a department or allocates a dedicated workforce, and ‘CVC Investment Fund’, which invests in an external venture capital fund. Excluding foreign CGS, there are a total of 176 independent CGS operating in Korea.
Specifically, among 82 large conglomerates, 52 (63%) had confirmed CGS’s investment history. Originally, general holding companies could not own CGCs in accordance with the principle of separation of finance and industry, but the revision of the Fair Trade Act at the end of 2021 made it possible to establish CGCs and invest in promising start-ups, which made an impact. Among the 36 major independent CGS, 7 were established after 2022.
The report suggested that the regulation of medium-sized companies and large corporations should be separated to stimulate domestic CGS investment. The current Fair Trade Act has regulations such as the holding of 100% of CVC shares by general holding companies, a debt ratio limit of 200%, a 40% limit on the share of external funds in the fund, and a 20% limit on foreign investment. , which prevents CVC investment from mid-sized companies, not large corporations. It is said to be mandated.
Startup Alliance said, “Mid-sized companies that need to create strategic outcomes by collaborating with startups are passive to CVC investment,” and added, “CVC revitalization needs policy support.”
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