A Study on the Factors Influencing the Performance of Korea Venture Capital Funds

Abstract

This study conducted empirical analysis on factors influencing the investment performance of 83 domestic venture capital funds (fund formation 2.66 trillion KRW) newly formed from 2007 to the end of 2022, which had completed their liquidation by the end of 2022. This study categorized and investigated the factors affecting venture capital fund performance as external environmental factors and internal factors. For external environmental factors affecting venture capital fund performance, the study analyzed ‘economic cycles,’ ‘stock market,’ ‘venture market,’ and ‘exit market.’ For internal factors, the research focused on the fund management company's capabilities, including ‘management company track record,’ ‘professional staff,’ and ‘assets under management (AUM),’ as well as fund structure elements like ‘fund size’ and ‘fund duration’. In summary, the analysis yielded the following results: First, as the yield of the 3-year government bonds, which is a good indicator of economic cycles, decreases, venture fund performance tends to improve, indicating a significant influence of government bond yield levels on fund performance. Second, the total capital inflow in the year of formation, which reflects the competitive intensity of the domestic venture market, was found to have a positive (+) impact on venture capital fund investment performance. Third, short-term funds outperformed long-term funds in terms of profitability. Fourth, it was observed that the larger the assets under management (AUM) of the management company, the better the fund’s return. Finally, the study found that the returns of venture capital funds vary by the year of formation, suggesting that when considering venture capital fund investments, constructing a portfolio that takes into account ‘external environmental factors,’ ‘internal factors,’ and the year of formation (Vintage) would be an effective investment strategy for individual investors.