Venture Investment, Shrunk by COVID-19, Increased Significantly in Q3 (Comprehensive)

Cumulative Venture Fund Formation Amount Also Turns to an Upward Trend

[Asia Economy Reporter Kim Cheol-hyun] Venture investment performance, which was hit by the novel coronavirus disease (COVID-19) this year, turned to an increasing trend in the third quarter compared to last year. The year-on-year decline rate of cumulative performance up to the third quarter significantly decreased compared to the first half. With an increase in venture fund formation, the cumulative figures also shifted to an upward trend. Despite the ongoing COVID-19 crisis, the recovery of the previously contracted venture investment market is becoming more evident.

◆Venture Investment Greatly Increased in the Third Quarter = The Ministry of SMEs and Startups (Minister Park Young-sun, hereinafter referred to as the Ministry) announced on the 27th that the venture investment performance in the third quarter of this year was recorded at 1.192 trillion KRW, a 6.0% increase compared to the third quarter of last year, based on an analysis of venture investment and fund formation trends. Venture investment in the second quarter of this year decreased by about 27.2% compared to the previous year, but in the third quarter, it increased for the first time this year compared to the same period last year. Compared to the second quarter, when COVID-19 spread intensified, it increased by about 34.8%, showing a very steep growth rate. Accordingly, the cumulative venture investment performance from January to September was recorded at 2.8485 trillion KRW, a decrease of about 8.7% compared to the same period last year. With the recovery of investment in the third quarter, the year-on-year decline rate significantly decreased compared to 16.9% in the first half. Park Yong-soon, Venture Innovation Policy Officer at the Ministry, explained, "Monthly statistics show that the year-on-year decline rate has continuously decreased."

By industry, investments increased up to September compared to the same period last year in digital sectors such as Information and Communication Technology (ICT) manufacturing and ICT services, as well as in electrical, mechanical, and equipment industries related to materials and components. On the other hand, industries such as bio-medical, video/performance/music, distribution/service, and gaming saw cumulative investment amounts decrease compared to the same period last year, continuing the trend from the first half due to the overall downturn caused by COVID-19. The policy officer added, "Investment in non-face-to-face sectors increased, activating investments in foundational technologies such as semiconductors," and explained, "Bio and medical sectors also saw increased venture investments in the third quarter, and video, performance, and music sectors are transitioning to non-face-to-face services, leading to increased investments in some areas. Among distribution and services, investment in the e-commerce sector is increasing."

Cumulative venture investment performance in non-face-to-face sector companies up to the third quarter was 1.3362 trillion KRW. The share of total investment in this sector increased by 3.6 percentage points from last year to 46.9%. The decline rate in venture investment in this sector was 1.0% year-on-year, significantly lower than the overall venture investment decline. Particularly, quarterly data shows that investment in the non-face-to-face sector steadily increased from the first quarter, reaching 578.7 billion KRW in the third quarter, a 42.5% increase compared to the previous quarter.

◆Cumulative Venture Fund Formation Turns to an Increasing Trend = Venture fund formation in the third quarter of this year was recorded at 1.4793 trillion KRW, a 31.1% increase compared to the third quarter of last year. Until the second quarter, the trend was steadily decreasing compared to last year, but it sharply increased in the third quarter. Compared to the second quarter, the third quarter fund formation increased by about 123.2%, showing a large growth rate. As a result, venture fund formation up to September was 2.6498 trillion KRW, an increase of about 6.3% compared to the same period last year. Although cumulative venture fund formation in the first half decreased by 14.2% compared to last year, the cumulative venture fund formation including the third quarter turned to an increasing trend.

Analyzing the investment status of venture funds formed up to September, policy finance investments increased by about 48.2% year-on-year to 1.0239 trillion KRW. Policy finance investments increased significantly due to large increases in the mother fund and policy institution investments, resulting in a higher growth rate than in the first half. On the other hand, private sector investments decreased by about 9.8% year-on-year to 1.6259 trillion KRW. Among these, investments from individuals, foreigners, and other investors decreased by nearly 300 billion KRW, but investments from pension and mutual aid associations and venture capital (VC) increased by 168.1 billion KRW, reducing the year-on-year decline rate compared to the first half.

Policy Officer Park said, "Venture investment activities are operating normally. The 2020 mother fund is expected to be formed within the year with a total scale of 3.6 trillion KRW, and most of the 2.5 trillion KRW venture funds selected in the first half have been completed, which is expected to drive investment in the fourth quarter." He added, "However, the overlap of social distancing level upgrades and the vacation season in the third quarter reduced venture capital's opportunities to discover investee companies, which could be a variable. Even considering this, we expect to maintain venture investments exceeding 4 trillion KRW this year despite the COVID-19 situation."

This content was produced with the assistance of AI translation services.