The scale of domestic venture lending deployed during the scale-up phase of venture companies has been found to be significantly smaller than in major countries. Critics point out that with little capital flowing into the venture ecosystem outside of policy funds, the survival rate of innovative firms is lower than in major countries.
According to the Hana Institute of Finance and the Korea Institute of Finance on Wednesday, the scale of US venture lending in 2024 was $53 billion (about 82 trillion won), about 750 times larger than Korea's venture lending of $70 million (about 100 billion won). The United Kingdom and Japan also have substantial venture lending at $4 billion and $2 billion respectively.
Venture lending is technically a loan, but it differs from traditional bank loans in that it receives equity with investment value, making it a distinct form of investment. Rather than investing in early-stage venture companies, it is an unsecured, collateral-free loan with a maturity of three to five years deployed during the scale-up phase. Only when venture lending becomes active can companies build the capacity to survive until subsequent rounds after receiving venture capital (VC) investment.
In Korea, VC equity investment is excessively concentrated rather than venture lending. Looking at the proportion of venture lending relative to VC equity investment, major countries are similar at 24.6% in the US, 25% in the UK, and 24% in Japan, but Korea stands at less than 1%. Analysts say that while the US and Europe assess the future value of venture companies, Korea operates a system that supplies funds based on asset collateral, so venture lending is not properly carried out. This is the background to criticism that there is neither the assessment capability nor the will. A financial industry official criticized, "The very small scale of venture lending means there is no market itself that evaluates companies based on technological prowess or growth potential."
Given this situation, some say that after venture companies receive initial investment, it is not easy to secure continuous funding, leading to problems such as selling equity at low prices or delayed growth. According to the Korea Data Agency, the five-year survival rate of new companies as of 2023 was 36.4%, falling below the Organization for Economic Cooperation and Development (OECD) average of 45.4%.
Kim Nam-hoon, a research fellow at the Hana Institute of Finance, said, "Domestic financial institutions, like VCs, have a strong tendency to prefer equity investment over loans," adding, "Beyond VC equity investment, investment-type loans such as venture lending must increase for capital market activation through venture capital to be achieved."
There are also many analyses that the domestic stock market still falls short in its function as a corporate fundraising channel. The proportion of companies raising funds in the capital market after their initial public offering (IPO) has been steadily declining. According to the IBK Economic Research Institute, as of the end of last year, KOSDAQ-listed companies in 2020 raised 1.637 trillion won in the capital market through paid-in capital increases, convertible bonds (CB), and bonds with warrants (BW). However, capital raised by KOSDAQ-listed companies fell to 1.0978 trillion won in 2022, then declined to 614 billion won for listed companies in 2023 and 191.9 billion won for listed companies in 2024. Suh Kyung-ran, head of the IBK Economic Research Institute, assessed, "The main purpose of listing on KOSDAQ is fundraising, but the scale of fundraising has been shrinking recently," adding, "It appears they are not properly achieving the purpose of listing."
Financial authorities also share this awareness of the problem. While a money move into the stock market has pushed the KOSPI index up and down around the 8,000 to 9,000 level, authorities suggest that the stock market, leaning toward its secondary market function, is failing to create a virtuous cycle.
