South Korea sees spike in angel investment with over USD 1.75 billion

According to South Korea’s Ministry of Small Business and Venture Business, angel investors’ investment in startups in 2016 totaled KRW 212.6 billion (KRW 174.7 billion from personal direct investment and KRW 37.9 billion from private investment funds). Angel investment has also become a significant pillar of venture investment.

Last year’s personal direct investment included 3,984 people and KRW 174.7 billion (based on income deductions) which marked the highest in both the number of investors and amount since 2004, the year the venture bubble burst and the number of private direct investors fell sharply.

Photo from Platum.

Private investment has shown a remarkable increase since 2010, especially in the last three years (2014-16). The average annual growth rate was 41.2%.

Considering that the application for income tax deduction for investments made in 2016 applies until 2019, the actual number is estimated to be even larger.

Individual investment unions, which have more expertise than individuals, economies of scale, investment risk mitigation, and portfolio composition, are also steadily increasing in size.

Individual investment unions began to flourish in 2013 and as of June 2017, 273 individual investment unions were formed with total cumulative investment reaching KRW 137.8 billion. Compared to 2015, this is a 206.7% increase in terms of the number of unions and a 209% increase in terms of the amount of funds. Looking at a single year, 2016 marked KRW 37.9 billion which was the highest so far.

Among the various factors that facilitated angel investment, the most effective seemed to be the government’s policy that aimed to rejuvenate the startup ecosystem and minimize the risk of angel investment.

First of all, income tax deduction for individual investment was the most effective incentive to induce more people to make angel investments. In addition, the angel investment matching fund, whereby South Korea’s pension fund matches investment 1-2.5 times, greatly contributed as well. Applying to matching funds was granted only to some angel investors with certain qualifications (based on investment performance, education, etc.).

From 2012 to June 2017, angel investment matching funds accumulated a total of KRW 192 billion and invested KRW 61.6 billion to 382 different companies. Among them, 23.9% (91 out of 381 companies) raised follow-up investments of KRW 147.8 billion in total from venture capital firms.

Looking at the investment trend in greater detail, there was a rapid rise in investment for early-stage startups and the number of angel investors who invested only small amounts of money. The investment into early stage startups increased by 178.0% based on last year’s number of deals and 30.4% based on last year’s investment amount. The number of small investors who invested less than KRW 15 million soared, and many investors tended to invest small amounts into a greater portfolio of companies.

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This article, entitled “South Korea sees spike in angel investment with over USD 1.75 billion”, was written in Korean by Saerom Jeong of Platum, edited by AllTechAsia.

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