The purpose of this paper is to investigate how the venture capital industry evolves in Korea. The paper also compares the venture capital industry growth of Korea with that of the USA.
This paper forecasts the growth of the Korean venture capital industry using the Bass Model. The authors apply the Bass Model to both Korean and US data to compare the model estimates of Korean and US data, and to make use of the US case by taking the “guess by similarity” approach to analyze Korean venture capital industry growth.
The authors find that the innovative fund inflows in Korea are stronger than those in the USA, while inertial reinvestments are weak. The study forecasts that new investments in Korea grow at a 5-7 percent rate each year for the next five years, and the growth rate slows down over time. Peak investment is predicted around the year 2030.
Based on the forecasted venture capital investment schedule each year, this study derives the fundraising schedule and the implications for Korea fund-of-funds management to match the investment schedule.
The model estimates provide a guideline for forecasting venture capital industry development in countries with brief histories of venture capital, which lack data. The analysis can also be applied to cases when developing countries and emerging financial markets assess the impact of government interventions on venture capital industry growth, especially when they provide fund-of-funds.
The authors thank Jinook Jeong, Ki-Sam Kang, Sang-Soo Kim, Jong Chan Park, Korea Small and Medium Business Administration and the Korea Venture Investment Corporation (KVIC) for their helpful comments and discussions. The research design of this paper is based on the research project funded by KVIC, “The size of Korea fund-of-funds considering the change in Korean venture capital market.” Any views and opinions expressed are those of the authors and do not necessarily represent those of KVIC. All errors remain ours.
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