Korea Capital Market Institute

This report aims to review the current landscape of overseas government venture capital (GVC) programs and suggest their best practice operations and improvements. Government venture capital is venture capital that invest in early and growth stage companies with or without private venture capital to achieve policy objectives such as regional and industrial development, and promotion of venture ecosystem. Many foreign governments are currently managing GVC programs despite the potential problem of bureaucratic operation.

This report provides information on 74 GVC programs in 21 countries in North America, Europe and Oceania, focusing on the characteristics of program managers, investment types, investee companies, investment sectors, policy objectives, and investment return distribution among capital providers. Majority of GVC programs are run via direct investments (63%), while government fund of funds and co-investment take up 31 and 18%, respectively. While most GVC programs invest in fast growing startup or early stage companies in rapidly growing sectors, some programs invest to promote regional development, overseas expansion and social responsibility.

While most GVC programs invest in startup or early stage companies in rapidly growing sectors, some programs invest to promote regional development, overseas expansion and social responsibility. GVC programs are based on Public-Private-Partnership(PPP).

Best practice GVC programs use investment vehicles consistent with private venture capital, and do not interfere with its operation. For more efficient management, such programs use more indirect programs by providing capital to privately managed venture capital fund or fund of funds, based on the principle of PPP. In addition, to attract private LPs for more viable venture capital, governments need to provide advantaged profit distribution schemes to private LPs.

Based on these discussions, it is suggested that GVC programs in Korea improve on the following respects. First, privately managed fund of funds should be introduced in Korea. Second, strengthened incentives to private LPs should be considered. Third, more efficient management removing redundancy among GVC programs is recommended. Finally, the balance between supply side such as GVC programs and demand side polices such as promotion of entrepreneurship should be sought.