Despite the rapid growth of Korea’s impact investing market, startups seeking to address social and environmental challenges are struggling to secure follow-up funding as investments remain heavily concentrated in early-stage businesses. Experts warn that the lack of financing for growing companies could undermine the sector’s long-term sustainability.
Early-stage investments accounted for 69.7 percent of the total, with seed and startup investments making up 9.4 percent and venture-stage investments accounting for 60.3 percent, according to a report published by the Korea Capital Market Institute (KCMI) on Oct. 26.
Growth-stage investments accounted for just 22 percent, followed by mature-stage investments at 8.3 percent.
Impact investing seeks to generate financial returns while addressing social challenges in areas such as the environment, education and finance. Unlike environmental, social and governance (ESG) investing, which considers social responsibility as one factor in investment decisions, impact investing prioritizes solving social problems.
Assets under management by Korean impact funds grew from approximately 30 billion won ($22 million) in 2002 to 6.6 trillion won in 2024, which accounted for about 12 percent of the country’s total venture fund assets
The market’s rapid expansion, however, has yet to translate into a more balanced investment ecosystem, as nearly 70 percent of investments remain concentrated in early-stage companies. In other words, while funding to identify and support promising startups has increased, financing to help them scale up remains limited.
“Many companies start with promising ideas but eventually have to shut down or change course because they fail to secure follow-up investment,” Kim Min-jung, the CEO of alternative credit scoring fintech firm CrePASS, told the JoongAng Ilbo on Sunday.
CrePASS was among the fortunate few to secure around 7 billion won in follow-up funding after receiving early-stage impact investment, but not every company has been as lucky.
The KCMI also highlighted this structural weakness in the impact investing market.
“Investments are heavily concentrated in equity financing for early-stage and venture companies, leaving a shortage of follow-up funding, while exit opportunities through initial public offerings and mergers and acquisitions remain limited,” said Park Chang-gyun, a senior research fellow at the KCMI.
The sector also remains heavily dependent on government support. Of the 22 institutions surveyed by the KCMI, 95.5 percent had received funding from the central government, regional governments or public institutions. By contrast, only 22.7 percent had secured investments from pension funds, and just 9.1 percent had attracted foreign institutional investors.
Diversifying funding sources beyond government-backed investment remains a major challenge.
Demonstrating measurable social impact is another hurdle. While 90.5 percent of investment institutions reported their social impact performance to investors, only 47.6 percent used such assessments in actual investment decisions. Just 28.6 percent disclosed the results to the general public.
Critics warn that the lack of transparency makes it difficult to determine what tangible changes socially responsible investments have achieved, which could potentially discourage greater private-sector participation.
Although challenges exist in diversifying funding sources and demonstrating social impact, impact funds have already achieved financial returns comparable to those of conventional venture funds.
A total of 16 impact funds recovered an average of 119.4 million won for every 100 million won invested, nearly matching the 119.6 million won recovered by 585 conventional funds, according to an analysis of 637 venture funds that completed their investment cycles between 2002 and 2023.
“The traditional belief that financial returns and social impact are inherently at odds is not necessarily correct, and the two can coexist,” Park said.
Impact funds had an average operating period of 7.77 years, about 10 months longer than conventional funds’ 6.93 years, which underscores the importance of securing long-term investors.
