List all the funding sources that are required for the sustainability of this solution
To efficiently sustain Korea Fund of Funds, capital from private sectors is the most important component. Without matching with private funds, Korean Fund of Funds will not be able to format the VC funds. Currently, Korea Fund of Funds consists of 5 different capital sources from relevant entities, and these capitals have been the seed money to be invested in VC funds. During its lifetime, the Korea Fund of Funds will act as the stable capital sources for VC funds and its size is expected to keep increasing, and pension funds, corporate and foreign investors are the key funding sources to achieve the successful sustainability of Korea fund of funds.
Demonstrate how your proposed solution has the capacity to graduate from dependence on public finance. What is the time frame?
Currently, Korea Fund of Funds is being sponsored by government bodies such as Small & Medium Business Corporation, Korean Intellectual Property Office and Ministry of Culture, Sports and Tourism.
For more secure finance, it is making hard efforts to anchor more various financial sources. It is especially necessary for private investors to broaden their roles; gradually involving pension funds, corporations and foreign investors in fund of funds will increase venture funds pools. This will result in venture capital cycle being controlled by the private market with public finance only acting its role to benefit public and achieve policies.
Their participation as strategic and financial investors in funds of funds will completely depend on Korea Fund of Funds’ management performance, transparency and reputation. It is the year 2011 when the Korea Fund of Funds’ investment period expires and its performance is assessed objectively and in the next three to five years, inflow of private capital will be accelerated.
Demonstrate how your proposed solution will survive a potential loss of its largest private funding source
One way of resolving the absence of private funding in venture funds is;
Stage 1: Inducing additional financing from government-affiliated institutions, which is currently limited to government related funds only.
Stage 2: As well, it will be necessary to broaden the scope of investors to major pension funds, endowments, corporations, and strategic investors such as successful venture firms and SMEs.
Stage 3: Attracting foreign financial institutions and global conglomerates to be strategic investors should increase the variety of investors in venture funds.
Stage 4: After these steps, sharing accumulated industry knowledge with underdeveloped countries could be another way of securing more finance.
As you can see, these suggestions to broaden the scope of investors will enable quick response and resolution in case of the absence of private investors.
Please tell us what kind of partnerships, if any, could be critical to the greater success and sustainability of your innovation
It is necessary to enhance Korea Fund of Funds’ status by building strategic relationships with KVIC and its investors such as pension funds, private corporations, wealthy individuals and foreign investors. As well, creating partnerships with foreign investment institutions through active participations in events such as forums and conventions is also important.
The co-advancement of venture businesses, venture capitals, and their investors will be maximized if an interactive cooperation system between research institutions, academic society, advisory institutions, political financial institutions and both national and foreign corporations.
Are there non-financial issues that could threaten the sustainability of your proposed solution?
Currently, the only vehicle for collecting returns in Korean venture capital market is going on IPO on KOSDAQ; its market condition is critical in venture ecosystem’s virtuous cycle. Therefore, it is necessary to constantly vitalize the KOSDAQ market and develop and implement other collecting methods.
To increase participations of private investors such as pension funds, corporations, wealthy individuals and foreign investors, it is important to flip the negative perception of the venture capital market and develop its communicating ability by
a. emphasizing that VCs are profitable, safe, professional partners of small and medium businesses that will work together with them from discovery to incubation and managerial support,
b. changing VCs’ image of being a group risk-averse investors, and
c. growing global communication skills to increase foreign investors’ attention and participation on domestic market.
Please tell us if your proposed solution aims to scale up through a high growth sector, expand immediately to multiple sectors, and/or scale up geographically
Initially, Korea Fund of Funds was designed to support local high-tech oriented start-ups only, but it has diversified the investment scope from start-up focused funds to Mid-sized M&A funds and cross border investment funds to meet the market needs following the growth of venture industries in Korea.
Not only the asset classes and the regions have diversified, but also the investment target industries have been broadened. The high growth sectors such as ICT, life-science, clean-tech industries have become one of the main investment targets of the VC funds, and IT convergence sector is also the hot topic for the fund investments.
Technology developments and market changes require different investment strategies. Even though it had started with specific purposes to support local high-tech SMEs, Korea Fund of Funds has adjusted its investment strategies to answer the market needs.
Achievements of such new approach of Korea fund of funds management can be easily concluded. With the help of Korea Fund of Funds, Korean high-tech industries have been able to develop at a balanced healthy growth pace. In the early 2000s, a few of big conglomerates such as Samsung and LG were the only Korean companies in the global market, however, after a decade, there are numerous Korean players in the overseas market and they are the frontier players in the related sectors. This was possible because of timely basis technology developments and continuous R&D investments.
For instance, semiconductor companies have reformed themselves to solar cell, display related tech firms. Materials and components manufacturers have become the advanced material providers. These are the results of active R&D investments and searches for new growth engines, and Korea Fund of Funds has provided stable capital sources to these venture firms through VC fund investments.
The investment target regions have also been broadened. Korea Fund of Funds backed VC funds are now seeking more opportunities outside of Korea. Cross-border M&A funds, overseas market expansion funds, China funds, and other VC funds targeting overseas markets are being established in the market with the support of Korea Fund of Funds.
Venture investment is the work of nurturing hidden champions. Unlike other solutions, Korea Fund of Funds supports technology oriented SMEs and according to the developments of technologies, Korea Fund of Funds transforms its investment strategies to provide most suitable supports to the venture firms.