Impact Funds Grow to 6 Trillion Won... "Funding Methods Must Be Diversified"

Despite Increased Public Fund Commitments, Early-Stage Impact Companies Still Face Funding Shortages

"Blended Public-Private Finance and Long-Term Capital Are Needed"

As the total assets under management (AUM) of domestic impact funds—pursuing both financial returns and social value creation—have increased to the 6 trillion won range, there is growing consensus on the need to diversify funding methods in line with each company's development stage and business characteristics. Experts highlight the necessity for measures such as permitting venture funds, which primarily focus on equity investment, to also provide loans and acquire bonds, as well as establishing separate funding tracks for early-stage impact companies and large-scale financial support at the commercialization stage.

"Size of Domestic Impact Funds Grows 60-Fold Over 20 Years"

According to the Capital Market Research Institute on July 29, Senior Research Fellow Park Chang Gyoon noted in the report "Current Status and Challenges of the Domestic Impact Investment Market" that, based on data from the Venture Investment Announcement System (DIVA), the number of domestic impact funds rose from seven in 2004—with an AUM of 100 billion won—to 301 in 2024 with an AUM of 6.65 trillion won. The proportion of impact funds among all venture funds has expanded to 16% in terms of the number of funds and 12% in terms of AUM.

Impact investment is defined by the pursuit of measurable, positive social value alongside financial returns. What distinguishes it is the explicit consideration of social value creation in investment decision-making, as well as the measurement, management, and disclosure of social outcomes generated by the investment.

However, there remains a persistent set of structural challenges, including insufficient funding supply, lack of standardized measurement for social outcomes, uncertainty in exit opportunities, and a shortage of impact startups. Research Fellow Park argued that in order to expand the impact investment ecosystem, there needs to be an increased role for fund sponsors and limited partners (LPs). While expanding allocations of public capital from organizations such as Korea Venture Investment and Korea Growth Investment Corporation is recommended, a blended finance approach—where policy-driven and private capital divide roles—is essential.

Experts also stress the need to diversify funding instruments to match each company's growth stage and business nature. Research Fellow Park commented, "Currently, venture funds are restricted to equity acquisition, but we should consider allowing alternative financing such as loans or bond acquisitions within certain limits, or even introduce dedicated impact investment organizations."

Industry voices, especially from the field, point to a major funding gap when companies approach commercialization. Lee Soon Yul, CEO of impact investing and acceleration firm QNesti, noted, "Climate-tech companies require significant capital to build factories or mass production facilities right before commercialization, but it's precisely at this stage that loans are hard to obtain. Guarantees and long-term, low-interest loans are crucial in helping companies survive until revenue and cash flow are in place."

"Policy Funding Alone Has Limits... Private Sector Collaboration Is Essential"

In the global impact investment market, both equities and bonds are already utilized in tandem. As of 2024, among global impact investing assets, private equity accounts for 41% and private debt for 21%. Public equities account for 12% and public bonds for 9% respectively.

On the ground, there are also concerns about the mismatch between the outward expansion of impact funds and the investment environment felt by early-stage companies. Although more public agencies are backing impact funds, the capital is often funneled into venture capital funds that target Series A and later-stage companies.

CEO Lee added, "It's encouraging to see increased public sector participation this year, but with sponsorships concentrated on VCs investing from Series A onward, it's becoming difficult for early-stage impact investment firms to secure fund backing."

He further explained, "Last year, investment amounts in companies younger than three years fell by 63% year-on-year, while investments in companies between seed and Series A dropped by 40%. The number of investment deals also dropped by 33%. Even if the overall backing grows, if funds are concentrated on a small group of proven later-stage companies, little to no funding trickles down to early-stage impact companies."

"Despite Expansion of Impact Funds, Early-Stage Companies Still Face Funding Shortages"

The need for a separate track dedicated to early-stage impact investing was also highlighted. CEO Lee stated, "We need to establish a separate track for investing in early-stage impact companies that have not yet been sufficiently validated in the market after their first launch. Stakeholders should consider who will be responsible for sourcing, investing in, and connecting these early ventures to programs like TIPS and subsequent growth rounds."

For entrepreneurial small business owners or local creators, project finance—positioned between equity and loan investment—could be a viable alternative. This approach focuses on investing first in cash-generating business units, such as individual stores, products, or flagship shops. If the business model proves repeatable, subsequent conversion to corporate equity investments may follow.

CEO Lee added, "For a small-business-style company to grow to the point of qualifying for corporate equity funding, extensive validation is required. Investing first in cash-generating individual projects like store expansion or product sales, then moving to equity investment once the business model's repeatability is confirmed, is the kind of growth pathway required."

Research Fellow Park concluded, "Given the limitations of relying solely on policy funding, collaboration through blended finance—where private capital shares roles—is indispensable. Korea must now move beyond merely establishing the foundation for its impact investment ecosystem and focus on designing new structures that enable scaling up."

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