Venture Capital in South Korea

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South Korea Flag

As a venture capital Firm, Effi Enterprises monitors the global economy, watching for countries that are prime for investment opportunity.  They seek emerging start-up companies that are in need of funding to propel their business to success.   Efraim Landa, the founder of Effi Enterprises helps them attain that funding in exchange for equity in their company. With a consistent venture capital activity, solid plans for supporting the growth of their domestic venture capital industry, and movements away from traditional financing to venture capital financing, South Korea is a place of interest for investors across the globe.

 Current State of the Venture Capital Market in South Korea

South Korea has made exceptional progress in promoting an environment that supports venture capital growth.  In 2000, there was a total of 147 registered start-up investment companies.  Since then there has been a gradual decline and in 2012, there were 104 of these companies.  Every year ten new start-ups companies are registered while ten more are cancelled indicating that despite a gradual decline, venture capital is a active area in the South Korean economy.  In 2012, almost 89% of venture capital investments were invested in media, telecommunications, and general manufacturing.  Investment in early-stage businesses accounted for 45% of the total number of companies invested in.  However, in terms of total capital amounts invested, 49% of the total capital invested was in late-stage investments.

There has been a gradual shift away from traditional Chaebol-style business models, but the continued Chaebol domination of the Korean economy causes significant business problems for some venture capital investors.  Chaebol refers to a South Korean form of businesses conglomerate with strong ties to the government agencies.  Small and medium Korean companies may be hesitant to work with foreign firms out of fear of harming a valued chaebol relationship and the relationships the chaebol enjoy with local banks may complicate obtaining access to credit for smaller firms.  The complete development of the Korean venture capital market has been slowed because the Korean shareholder culture has yet to entirely develop.  Despite these challenges, there has been a shift in the Korean venture capital market towards non-traditional financial sources for growth, opening up opportunities for venture capital.  Since the worldwide economic downturn, Korean venture capitalists have reduced their investment in emerging, start-up companies, reflecting the decline in interest in the high-tech industry from investors.  The Korean government has worked to promote the venture capital industry as well as all new businesses and the general entrepreneurial culture in South Korea by providing financial assistance through investing as a limited partner in existing partnerships between South Korean venture capital firms and their emerging businesses.  The VC firms contribute to capital to a fund and then the Korean government will also contribute after considering track records and credibility.

Future of the Venture Capital Industry in South Korea

Recognizing the crucial importance of the venture capital market to the future growth of South Korea, the South Korean government has begun minimizing administrative regulations that had been inhibiting the full creativity and technological strengths of many venture capital companies.  One example of the government’s efforts to make change in the legal code concerning business law includes the “Act on Special Measure for Promotion of Venture Business,” which assists venture companies in areas of start-up production, financing, manpower, technology, and plant sites.  Further changes can be made to promote growth of the venture capital sector and some believe limiting Korean venture capital firms ability to borrow against their capital, restricting them from making investments in forms other than equity and equity-linking into promising venture companies, and an increase in government assistance to venture capital fundraising activities could help stabilize and promote growth in the industry.

 

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About Efraim Landa

My name is Efraim Landa I am an entrepreneur and an expert in venture capital. I am the co founder of Effi Enterprises, a venture capital firm as well as the co founder and CEO of Gluco Vista, a company that is in the process of developing a non invasive glucose meter for those with diabetes.

Posted on May 21, 2013, in Business Financing, Effi Enterprise, History of Venture Capital, VC investments, Venture Capital, Venture Capital Markets and tagged , , , . Bookmark the permalink. Leave a comment.

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