[Venture Drought] ①Stock Market Heats Up, but Startups Still Face a Long Winter

Investment in Companies Less Than 7 Years Old Drops from 61% to 46% in Five Years
Widening Polarization in Startup Investment
"Measures Needed at the Fund-of-Funds Level to Address Polarization"

Editor's NoteThe Lee Jaemyung administration is increasing its budget and introducing various investment expansion policies to foster startups and venture businesses. However, early-stage startups are still experiencing a "funding drought," and the "rich-get-richer, poor-get-poorer" phenomenon among venture capital (VC) firms has intensified. This article examines the current state of the venture investment market, which is struggling through a difficult period, and explores possible solutions.

Just before the inauguration of the Lee Jaemyung administration, the stock market was heating up. The startup and venture market, which had endured a "winter" for three years, is now widely expected to see a flood of capital next year through the expansion of the Korea Fund of Funds, as well as various new systems such as the Integrated Investment Management Account (IMA), National Growth Fund, and Business Development Company (BDC).

However, a significant number of startup and venture CEOs are still struggling through this difficult period. Lee Minhyeong, Senior Manager of Policy Research at the Korea Venture Business Association, pointed out that domestic VCs are failing to fulfill their role as "risk capital." He said, "VCs continue to invest only in companies with guaranteed success and avoid investing in high-risk startups. While the government talks about creating a 40 trillion won venture investment market, these bottlenecks must be addressed first."

VCs Flock to Ventures Nearing IPO

During the "winter" period, VCs, faced with reduced capital, prioritized follow-on investments in companies they had already backed. For new investments, they focused on later-stage companies, such as those in Series B to pre-IPO rounds, where exits are easier. With limited investment capacity, "club deals"-where multiple VCs swarm to invest in promising companies-became commonplace. The fact that dozens of VC names appear among the shareholders of recently listed companies on KOSDAQ is evidence of this trend.

The tendency of VCs to invest only in companies close to an initial public offering (IPO) for easier capital recovery is also supported by statistics. The share of total venture investment going to companies less than seven years old fell from 61.4% in 2020 to 46.3% this year. When narrowed to startups less than three years old, the figure dropped from 28.4% to 17.5% over the same period.

Even after the launch of the Lee Jaemyung administration, which is seen as favorable to startups and ventures, founders have not felt much improvement. According to the recently published "Startup Trend Report 2025" by Startup Alliance, 54.5% of respondents said the overall startup ecosystem has changed for the worse compared to last year. Of those, 50% cited "lukewarm investment and support from VCs" as the main reason.

Measures Needed to Encourage Early-Stage Venture Investment

From next year, the IMA, National Growth Fund, and BDC are expected to inject large amounts of capital, but these funds will likely focus on later-stage investments such as Series B and beyond. Therefore, for VCs to truly function as "risk capital," investment in seed to Series A stage startups must be increased. What solutions are available?

One approach is for the Korea Venture Investment Corporation and other fund-of-funds providers, which supply government capital to VCs, to incentivize early-stage investments. Koo Taehun, CEO of Mineta Brook Ventures, said, "While the increased availability of venture capital next year may help activate the market to some extent, it is not likely to lead to a fundamental improvement. Since a large portion of VC funds comes from the fund of funds, imposing certain policy-based restrictions on investment targets could help alleviate concentration issues."

VCs are general partners (GPs) who must generate returns for their limited partners (LPs). Therefore, many argue that the exit market should be revitalized to create a virtuous cycle of "increased VC returns → larger fund sizes → expanded investment in early-stage startups." In a recent joint survey by the Korea Chamber of Commerce and Industry and the Korea Venture Capital Association, VCs cited improving IPO requirements and activating secondary funds as the top priorities for boosting venture investment.

VCs also need to strengthen their own capabilities. An executive at a mid-sized VC, speaking on condition of anonymity, said, "Due to a lack of understanding of deep tech, VCs tend to periodically shift en masse from biotech to platforms and then to AI. Each VC needs to develop a focus on specific sectors."

There are also calls within the VC industry to ease the "separation of banking and commerce" regulation, allowing the creation of co-GP funds with leading conglomerates in specific fields. These corporations have many employees with deep industry knowledge and can devise precise strategies to foster ventures across the value chain of their respective industries. In the joint survey by the Korea Chamber of Commerce and Industry and the Korea Venture Capital Association, 61.6% of VCs identified "allowing industrial and financial joint GPs" as one of the key measures to revitalize venture investment.

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