- 06 / 07 / 2013
Creative Finance and Growth Ladder Fund
FSC Vice Chairman Jeong Chan-woo's briefing on 'Growth Ladder Fund' (May 22, 2013)
Today I will brief you on the plan to launch 'Growth Ladder Fund'
which we expect will contribute in creating healthy investment ecosystem
for venture and start-up companies.
'Growth Ladder Fund' is a part of our initiatives to realize 'Creative Finance'.
Today's version is a detailed plan to launch 'Growth Ladder Fund'
which is embraced by the 'proposal to create virtuous investment cycle' announced on April 15.
A healthy investment ecosystem for start-ups and investors is an essential foundation for "Creative Economy".
Unfortunately, start-up and venture companies are often faced with funding shortages
as the early stages of business start-up and growth involve greater risks for investors
due to uncertainties and asymmetric information.
To this backdrop, the FSC decided to launch 'Growth Ladder Fund'
to reduce financing uncertainties and create a healthy investment ecosystem.
[Current funding conditions for SMEs and venture companies]
Overall, it is evaluated that SMEs and venture companies are provided with sufficient funds and liquidity
thanks to supportive measures by the government.
Yet SMEs face few challenges in terms of funding structure.
First of all, SMEs are highly dependent on loans from banks and public financial institutions
which represent 99% of total SME financing.
Such funding structure levies significant burdens to SMEs
that suffer from insufficient cash flow at the early stage of business cycle.
Moreover, while the percentage of investment remains low
investments made to SMEs failed to meet the purpose as venture capital.
Angel investment volume in Korea is mere KRW 30bn
and the percentage of venture capital invested in the early stage of business cycle remains low.
Loan type investment with high interest burden is increasing.
Underdeveloped secondary market is another obstacle
hampering creation of healthy investment ecosystem for venture companies.
[Creation of Growth Ladder Fund]
The FSC plans to launch 'Growth Ladder Fund' to create a fund that does its part as venture capital.
We expect sufficient fund will be invested into venture companies and SMEs with innovative ideas.
By distributing investment risks to different groups of investors
public financing corporations will invest in high risk funds
and provide companies with tailored financial support.
Moreover, we plan to provide a comprehensive finance services
to the companies funded by 'Growth Ladder Fund' and support start-ups
to grow into larger companies by providing them with sufficient fund necessary for development.
[Basic structure of Growth Ladder Fund]
The fund will be structured in the form of 'Fund of Funds'
composed of various funds and subordinate funds with specified purpose and different structure.
Operation of each fund will be commissioned to specialized private firms.
Public financing corporations will not directly intervent in the operation.
Moreover, in order for the fund to fulfill its purpose as venture capital
public financing corporations will invest in high risk-high profit products
and private investors will invest in low risk-low profit products.
Banks Foundation for Young Entrepreneurs and public financing corporations
will invest in high to medium risk funds
and private investors will invest in low risk funds.
Doing so will encourage more private funds to flow into SMEs and venture companies.
In the first year, the fund will be launched worth KRW 2trln
composed of KRW 0.6trln raised from public financial institutions
and KRW 1.4trln from the private sector.
The size of the fund will be expanded up to KRW 6trln over the next three years since its creation,
with KRW 1.85trln raised by public financial institutions
and KRW 4.15trln raised through private sector investment.
In particular, Banks Foundation for Young Entrepreneurs and public financing corporations
will raise KRW 500bn worth of junior bonds.
To meet different needs of companies,
funds and subordinate funds will be created through various vehicles including PEF and venture fund.
Moreover, we plan to provide comprehensive financial services
related to credit guarantee and technical credit guarantee.
[Expected Economic Outcomes]
According to estimates by the Korea Institute of Finance,
the fund worth KRW 2trln is expected to increase KRW 5.5trln in production
and create 270,000 new jobs.
Add to this, the fund is expected to provide a valuable opportunity for our financial industry
to take another big step toward development.
The FSC will form a task force composed of public financial institutions and experts in May
and come up with a fund operation plan in June.
In August, subordinate funds will be created.
We aim to launch 'Growth Ladder Fund' in the third quarter.
Thank you very much.
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