A government venture capital (GVC) fund refers to a fund of funds financed by the government. It aims to increase the supply of funding to sectors that are of public policy importance but are unlikely to receive sufficient funding from the market. Although each government department manages a number of GVC funds, there are growing concerns about inefficient public spending, primarily due to unreasonable target market setting and lack of a comprehensive administration system. As an essential precondition, the GVC scheme should minimize crowding out private venture capital funds while providing a pump primer to effectively nurture the relevant market. The government should adhere to this policy objective and place relevant constraints consistently during the entire GVC funds’ cycle including fund establishment-management-liquidation phases.
When a GVC fund is newly set up, factors including the possibility of crowding out private VC funds, the attainability of policy goals and inefficiency stemming from overlapped investments should be fully taken into account. It is desirable to take a conservative approach to the establishment of a new GVC fund after examining the appropriateness of government-sponsored equity investment and the availability of other supporting policies. What is important in GVC fund management is to find a proper balance between non-financial policy objectives and the marketability of private venture funds. This requires the public fund of funds, which acts as a general partner (GP) exclusively responsible for GVC funds, to have investment capability and expertise. Although target markets and investment purposes of GVC funds vary depending on policies that each government department seeks to implement, it would be cost-effective to hinder the establishment of a separate GP for each fund if possible. A GVC fund’s dissolution needs to be distinguished from the liquidation of its GP. Also necessary is the privatization of the public fund of funds.
The government-financed startups development policy has both benefits and drawbacks. However, it is also true that the GVC fund is one of the main drivers behind growth of Korea’s enterprises. It is high time that we should discuss how to improve Korea’s GVC scheme regarding the startups development policy that evolves from quantitative expansion to qualitative growth.
