Oh Young-joo attended the “Startup Korea Fund Launch Ceremony”, held at Hotel Naru Seoul MGallery, Mapo-gu in Seoul, on June 24. The event marked the start of a significant public/private partnership aimed to boost venture investments in South Korea.
The venture investment industry announced the next day, June 25, that Korea Venture Investment Corp. (KVIC) received applications for the Startup Korea Fund project. 34 applications were in the “super gap” sector, and six in secondary sector. The 40 General Partner (GP), firms have requested a total investment amount of 898.1 billion won ($665.3 million) to create a sub-fund with 1.342 trillion won.
The “Startup Korea Fund”, an investment project, is a competition between 40 GP firms including venture capital firms. The amount of investment requested by these GPs, which is around 900 billion won (about 585.3 billion won) by KVIC, is significantly higher. This shows the high level of interest in venture capital.
There is a correlation in the number of private Limited Partners (LPs), who are participating in the Startup Korea Fund, and the number of General Partners (GPs) applying for the project. Thirteen of the 20 private Limited Partners have their Corporate Venture Capital or affiliates participate in this investment project. This has raised concerns about the fairness and integrity of the investment project. A venture capitalist insider commented: “Since private LPs participate in the investment committee, it’s natural for them to prefer their own.”
The investment review committee, made up of KVIC, private LPs and GPs, will decide the final investment scale based on how many combinations are to be selected in each sector based upon the proposals submitted by GPs. This is different from typical fund-of funds investment projects where the number of combinations selected is predetermined.
The GPs involved in this project are 13 of the private LPs that are part of the Startup Korea Fund. These include Samchully Investment (Samchully), Kakao Ventures (Kakao Mobility), Hyosung Ventures (Hyosung, Hyosung Heavy Industries, Hyosung TNC), KB Investment (KB Bank), KC Investment Partners (KC), CKD Venture Capital (Chong Kun Dang Holdings), Encore Ventures (NPC), and L&S Venture Capital (Shinsung Delta Tech). IBK Venture Investment participates in a joint venture with FuturePlay and Kolon Investment, while Samsung Securities supports the super-gap in a joint venture with SBI Investment. Hanwha Investment & Securities also supports the super-gap, where Hanwha Total Energy Solutions LP.
Venture capitalists have complained about this investment project. Critics claim that the project is geared towards GPs who are related to private LPs. These private LPs-related GPs also receive preferential treatment in the selection criteria. KVIC states that only private LPs’ letters of intent and commitments (LOIs) will be given extra points in the selection process. This increases the likelihood that extra points will be concentrated on GPs who have strong connections with private LPs.
A representative from the Ministry of SMEs and Startups said, “The Startup Korea Fund was created to encourage those who had been passive investors in venture capital to become active ones.” The private LPs that participated this time have also increased their investments compared with last year. “Scaling up is just as important as distribution.”