Government to Serve as Starter Investor in Deep Tech with Investment-Based R&D... "Investment Decisions and Responsibility Remain Challenges"

Investment-Based R&D in Deep Tech Sectors like Quantum Technology and SMR
To Launch Next Year; Profits to Be Reinvested in R&D
Government Takes on Risk of Failure but Expected to Drive Private Investment

The government has decided to become a long-term investor in deep tech sectors, such as quantum technology and small modular reactors (SMR), that require a long time horizon of 15 to 20 years before markets are fully developed. The plan is for the government to serve as a "starter investment" in technologies where private sector investment is hesitant. Instead of simply providing research and development (R&D) funds as one-off support, the government will share investment risk and, if successful, reinvest the profits back into R&D.

According to the Ministry of Science and ICT on August 14, the government will launch a new "investment-based R&D" program starting in 2027, in addition to the current method of providing research grants. This will be done by revising the budget allocation guidelines, and related budgeting is already underway. In the medium to long term, the plan is to clearly specify the investment and equity participation methods in the National R&D Innovation Act, thereby strengthening the legal foundation.

Because venture capital (VC) funds typically seek to recover their investments over a short period, it is difficult for private capital to supply large-scale funds for deep tech industries that take a long time to cultivate. The Ministry of Science and ICT estimates that, for certain deep tech projects among the seven SEED projects, it may take as long as 15 to 20 years for the market to develop and for investments to be recouped. As a result, the ministry has determined that an investment-based R&D initiative, with an active government role, is needed. For this reason, the "7 Major SEED Projects for Future Growth," announced on August 12, proposed a variety of support strategies, including joint public-private R&D, equity investments, and collaborative funding.

The government itself will not become a direct shareholder in individual companies, since public ownership of private stock may later become a burden for businesses during mergers and acquisitions (M&A) and follow-on investments. Instead, it is expected that an indirect investment model will be used, where funds are channeled through research management organizations to investment associations, funds, or special purpose companies (SPCs), which will then acquire project equity. It is also possible for both public and private funds to jointly invest in a separate SPC.

If the project fails, the government also bears losses... Profits from success are reinvested

The government will wait 15 to 20 years and also bear the risk of losses if the investment fails. To encourage private sector participation, the government is considering taking on additional investment risk depending on the program and, if successful, collecting its own returns only after private investors have been paid back.

An official from the Ministry of Science and ICT stated, "If we claim to foster new growth drivers but shift commercial risk onto companies, just like bank loans, we will not be able to open new markets and industries early on. We are designing a framework in which the government waits for the long term, assumes risk even in the face of losses, and delays its own returns even if profits are generated."

Reference photo to aid understanding of the article. The Asia Business Daily DB

If an investment is successful, the government's investment vehicle will sell its equity to recover the invested funds. These recovered funds will be reinvested into R&D, creating a virtuous cycle of 'investment → success → recovery → reinvestment.' Rather than charging a separate technology fee, the aim is to collect investment returns through equity sales and similar methods.

The challenge is that, by moving beyond simply "supporting R&D" to also becoming an "investor," the government will have to make investment decisions and shoulder responsibility. Deciding which companies and technologies to invest in, and determining the extent of risk sharing in the event of failure, will be critical issues. If the government takes on too much risk, controversy may arise that 'profits go to the private sector, while losses are borne by the government.' On the other hand, if the government focuses excessively on profitability, it could conflict with the program’s intent of supporting high-risk research.

Industry experts point out that, not just in quantum technology but in other areas like nuclear fusion that require massive funding and long commercialization periods, it is difficult for the private sector alone to shoulder risk for extended periods. This is why government investment can serve as a spark to attract private capital into deep tech sectors where the market and revenue streams are not yet mature.

A domestic quantum industry official, who requested anonymity, said, "There still are not many cases where quantum technology is directly used in industry, and most of the demand is for early-stage R&D. This makes it difficult for domestic investors to invest. Overseas, companies are valued more for their future potential than their current sales, so government-led investment in Korea could benefit the private sector as well."

This official also emphasized that investment selection criteria should prioritize technological capability over short-term revenue. "Because quantum business is not in a stage where it can compete based on sales, objective evaluation should be referenced from how global quantum companies are assessed," he said. "Technology should come first, and criteria such as research papers and patents also need to be considered."

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