South Korea Doubles Down: Public Venture Funding to Fuel Next-Gen Unicorns in AI & Deep Tech

The South Korean government’s 2026 venture funding strategy signals a marked ramping up of its public-venture finance regime, with several strategic shifts that demand careful observation for investors, fund managers, and ecosystem actors. Primary among these is the creation of a more seamless funding ladder: rather than compartmentalizing capital by early stage vs. scale-up, Seoul is bundling support from founding through unicorn status and international expansion under its “Next-Generation Unicorn” framework. This increases predictability of financing and may reduce the risk of growth-stage funding gaps.

A second major shift is towards leveraging the government’s pools—Mother Fund and National Growth Fund—to act as priming, or catalytic, capital. The government is intensifying its role as anchor investor, but unlike earlier eras, it is focusing on attracting pension funds, financial institutions, and other private LPs to institutionalize recurring, large-scale capital flows. Regional mother funds, private anchor investor mobilization (₩340B) and enabling institutions suggest a strategy to de-risk venture investment for private money.

Third, the policy addresses a common sticking point in venture markets: exit liquidity. The allocation of ₩120B for M&A and secondary transactions reflects acknowledgement that IPO markets have been constrained, leaving capital trapped. Improving exit pathways and secondary markets enhances capital recycling and may improve IRR outcomes.

Despite the expansion, the returns of mother-fund-affiliated venture funds remain modest. A 7.5% IRR overall—and ~9.3% excluding loss‐heavy policy sectors—suggests that government-led funding is delivering returns, but not yet at levels that attract risk capital at the level of mature VCs or LPs targeting double-digit returns. For private market participation to scale, such returns will likely need to improve or be supplemented by non-financial incentives (e.g., tax, guarantees, preferential procurement).

From a macro and strategic standpoint, the government’s target is ambitious: building an annual venture investment market of ₩40 trillion by 2030, supporting 10,000 AI/deep-tech startups, and generating 50 unicorns/decacorns. If realized, this places South Korea among the rare countries with large scale output in both deep tech and innovation. But such ambition increases execution risk—particularly in sourcing sufficient high-quality deal flow, preserving governance, enabling talent and regulatory environments, and ensuring regional economies contribute beyond Seoul/Korea’s core hubs.

Strategic Implications: Private sector actors should anticipate more government‐backed funds, especially in AI and deep tech, increasingly participated by institutional LPs. As regional venture capital emerges, local startups stand to benefit from added resources, but competition and expectations for scale and cross-border ambition will rise. Fund managers will need to sharpen sector focus, metrics, and follow-on funding capacity. Exits will be a focal challenge; secondary market and M&A support improves, but regulatory, valuation, and capital market conditions will remain key obstacles.

Open Questions / Uncertainties:

• How the government will ensure quality deal flow and avoid dilution of capital efficiency as fund scale rises.
• What mechanisms will be used to attract and retain private LPs (e.g. pensions) given current IRRs.
• How tax, regulatory and structural barriers—e.g. valuation of unlisted firms, financing terms—will evolve.
• The role of global expansion: how much infrastructure, partnerships, and export readiness will be supported.
• Whether regions can build venture clusters sufficient to avoid over-centralization in Seoul.