Korea has unveiled a renewed national venture strategy anchored by the Ministry of SMEs and Startups’ (MSS) KRW 1.6 trillion Fund of Funds for 2026. The move reinforces Seoul’s push to expand AI and deep tech unicorn pipelines while addressing structural funding gaps across regional and early-stage ecosystems—signaling a new phase in Korea’s venture capital architecture.
MSS Approves ₩1.6 Trillion Fund of Funds Expansion for 2026
The Ministry of SMEs and Startups confirmed on January 20 that it will allocate KRW 1.6 trillion (~US$1.2 billion) to the Fund of Funds (Mother Fund) in 2026, up from KRW 1.3 trillion last year.
The funding blueprint was finalized during the 2026 Fund of Funds Investment Strategy Committee chaired by Minister Han Seong-sook, with participation from leaders of the venture, capital, and financial investment sectors.
The expanded investment is projected to mobilize KRW 3.6 trillion in total venture capital capacity, focusing on AI, deep tech, and regional venture development.
The Fund of Funds committee, launched in 2024 to increase transparency and predictability in government-backed venture financing, convened to review 2025 performance and chart the fund’s operational direction for 2026.
Fund of Funds (Mother Fund) as the Cornerstone of Korea’s Innovation Model
The Fund of Funds—established to seed private venture capital formation—remains the cornerstone of Korea’s innovation finance model.
In 2025, MSS invested KRW 1.3 trillion, resulting in KRW 3.3 trillion in venture fund formation. The fund backed three startups that achieved unicorn status: FuriosaAI, BeNow, and Galaxy Corporation.
That same year, 74% of newly listed KOSDAQ firms were Fund of Funds portfolio companies, underscoring its central role in Korea’s venture scale-up pipeline.
Liquidated sub-funds in 2025 posted a 7.5% average internal rate of return (IRR)—comparable to the fund’s 20-year cumulative average of 8%. Excluding low-yield policy-driven sectors such as cultural, film, and angel investment, the IRR rose to 9.3%, with regional funds outperforming at 9.7%.
Focus Areas for 2026: AI, Deep Tech, and Regional Growth
The KRW 550 billion “Next-Generation Unicorn Nurturing Project” will anchor the 2026 agenda. The initiative will fund AI and deep tech ventures through phase-specific capital deployment.
Additionally, KRW 340 billion will also be invested in private sector collaborations that will attract domestic venture investment from private funds such as pension funds and retirement pensions, as well as global investors.
The ministry will also target areas chronically underserved by private capital—early-stage startups and youth entrepreneurship (KRW 390 billion), as well as regional innovation (KRW 230 billion). MSS will also deploy KRW 120 billion to strengthen the M&A and secondary investment markets to improve liquidity.
To address Seoul’s capital concentration, all general Fund of Funds programs will now include a 20% regional investment mandate, with preferential selection for funds pledging higher ratios.
The policy will also be complemented by management fee incentives for early-stage investors and an extension of the secondary share investment exception (up to 20%) through 2030.
Korea’s Responsible Scale Commitment with ₩1.6 Trillion Fund of Funds 2026
Minister Han Seong-sook emphasized that the fund’s evolution reflects Korea’s commitment to scale responsibly:
“Over the past two decades, the Fund of Funds has played a central role in discovering promising ventures and nurturing them into unicorns. It has been a key driver in advancing Korea’s venture market into the world’s top five.
We will strengthen its accountability and platform role to support a KRW 40 trillion annual venture investment market.”
Committee participants—including the Korea Venture Business Association (KOVA), Korea Venture Capital Association (KVCA), and Korea Financial Investment Association (KOFIA)—agreed to enhance transparency and market participation through broader regional fund engagement and investor incentives.
Korea’s Governance and Transparency Reforms
The ministry will implement a Fund of Funds public disclosure system to make operational and performance data publicly available. The platform will visualize investment and return metrics, liquidation outcomes, and success stories, improving market trust and policy accountability.
To ensure cross-ministerial coordination, the MSS will establish a new Fund of Funds Operations Committee, including all contributing ministries and private-sector experts. This body will define unified investment principles and oversee governance reforms such as fund duration extensions and reinvestment standardization.
Parallel efforts will expand the Regional Growth Fund, a five-year initiative aimed at building KRW 2 trillion in parent funds and KRW 3.5 trillion in sub-funds across Korea’s 14 non-metropolitan provinces. Each fund will include community-led operational committees, with incentive packages designed to attract both institutional and private investors.
What It Means for Global and Domestic Stakeholders
The KRW 1.6 trillion blueprint repositions Korea’s Fund of Funds not just as a fiscal tool, but as a structural reform instrument for its venture ecosystem. By linking state-backed capital with private and global investors, the strategy aligns with global sovereign investment models emphasizing technological self-reliance and balanced growth.
For global investors, the framework signals sustained government commitment to deep tech, semiconductor, and AI infrastructure. And these are core to Korea’s sovereign AI, AI Transformation, and advanced manufacturing initiatives, strengthening the country’s path to become a global top three AI powerhouse.
Meanwhile, for domestic stakeholders, the reinforced regional mandate could redistribute early-stage risk capital beyond Seoul and Daejeon, potentially diversifying as well as building a connected engine within Korea’s innovation geography.
The inclusion of institutional co-investment pathways and transparent disclosure requirements may also elevate Korea’s investment ecosystem credibility among global limited partners and sovereign funds.
Toward Korea’s More Distributed Venture Future
Korea’s 2026 Fund of Funds framework marks a structural pivot in its venture policy architecture—linking innovation capital with accountability, regional equity, and global visibility.
The model demonstrates how coordinated public-private mechanisms can fuel deep tech development while building confidence for private investors. As the regional growth initiatives mature, the fund’s performance will likely shape how Korea positions itself as Asia’s most transparent, data-driven, and globally connected venture capital hub.
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