Concerns are growing that the new investments of the 'Mother Fund', which was established in 2005 and has invested a total of 31.8 trillion won in domestic ventures, could be suspended within two years.
Although the government's Mother Fund project is set to end in 2035, considering that the typical duration of fund management is eight years, there is speculation that new investments from the Mother Fund could cease after 2027.
If the government's Mother Fund project, which has served as a stable source of venture investment, is suspended, it could exacerbate the funding difficulties faced by ventures and startups.
The prolonged vacancy in the leadership of Korea Venture Investment, which operates the Mother Fund under the Ministry of SMEs and Startups, due to national confusion is also acting as a negative factor.
Based on the 'Special Act on Promoting Venture Businesses', the government Mother Fund, established in 2005, played a role as a stable source of funding for high-risk areas like ventures.
The government invested funds that serve as the Mother Fund in venture capital (VC) funds, which subsequently attracted private capital to increase the fund size and invest in SMEs and ventures.
This Mother Fund has been evaluated as having contributed significantly to revitalizing the domestic venture investment market by acting as an 'investment catalyst'.
As of the third quarter of last year, the total amount raised by the Mother Fund was 9.8 trillion won, supporting investments in various sectors of SMEs and ventures. VCs actually invested a total of 31.8 trillion won in 100,232 SMEs and ventures.
However, under the Venture Business Special Act, the government Mother Fund project is set to end in 2035. While it may seem like there is plenty of time left, considering that the typical management duration for venture funds is eight years changes the situation. This calculation raises concerns in the market that the new investments of the Mother Fund could be halted after 2027.
If the Mother Fund invests in a venture fund in 2027, that fund will exist for eight years, meaning there won’t be an issue in 2035. However, if the Mother Fund invests in a venture fund in 2028, extending the management period could lead to practical difficulties in managing the fund beyond its legal lifespan of 2035.
A VC official noted, "Since the government's policy fund accounts for about 40% of the domestic venture investment market, removing the core Mother Fund could lead to significant problems for domestic venture and startup investment and industry."
Jo Joo-hyun, head of the Small and Medium Business Research Institute, said, "We must present a precise direction to avoid market confusion regarding the Mother Fund's duration and upgrade its role."
Jo emphasized, "It is time to accurately analyze what contribution the Mother Fund has made to nurturing startups and creating a venture ecosystem and to determine the future role and related policy direction."
The prolonged leadership vacancy at Korea Venture Investment, the operating institution of the Mother Fund, is also being raised as a concern. Korea Venture Investment has been operating without a CEO since the resignation of Yoo Woong-hwan in November 2023.
At the end of last year, the process to appoint a next CEO for Korea Venture Investment was underway, but President Yoon Suk-yeol's state of emergency triggered a political impeachment situation, delaying the appointment process. Currently, Shin Sang-han, the vice president, is serving as the acting CEO.
The venture investment industry believes that some level of national turmoil must be resolved by mid-2025 for the appointment of the next CEO of Korea Venture Investment to take place.
The Ministry of SMEs and Startups recognizes this situation and plans to announce a mid- to long-term operational direction in preparation for the expiration of the Mother Fund's duration, aimed at reducing market confusion.
The Ministry of SMEs and Startups stated, "The duration of the Mother Fund under the Venture Business Special Act is 2035, and the actual fund management period is also interpreted legally to be until 2035."