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As South Korean policy funds including the National Growth Fund pour massive capital into domestic AI startups, driving up unlisted valuations, private limited partners (LPs) are beginning to refuse fund commitments amid concerns over an AI valuation bubble. Rebellions has been valued at approximately 3.4 trillion won (approximately $2.5 billion) and FuriosaAI at roughly 3 trillion won (approximately $2.2 billion), yet their 2024 revenues were only 32 billion won (approximately $23.6 million) and 5.7 billion won (approximately $4.2 million), respectively. Of the 13 mega-rounds exceeding 100 billion won (approximately $73.8 million) this year, three companies—Rebellions, FuriosaAI, and Exina—accounted for over half of the total. Investment industry insiders warn that if policy-inflated valuations cannot be sustained in the public market post-IPO, losses could be passed on to private LPs.
Key Elements
As South Korean policy funds pour massive capital into domestic artificial intelligence (AI) startups, driving unlisted valuations sharply higher, private limited partners (LPs) are beginning to refuse fund commitments amid concerns over an AI valuation bubble. AI—once considered the most favorable sector for fundraising—is now starting to face rejection from private capital.
According to venture capital (VC) and investment banking (IB) industry sources on the 22nd, a VC firm recently attempted to form a project fund for AI company investments, but LPs declined to commit. The LPs reportedly asked, “Don’t you have anything other than AI?” and judged that AI company valuations had already become excessively high, showing signs of a bubble.
This assessment appears to stem from the investment flow in South Korea that has tilted sharply toward AI in recent years. According to startup investment data platform THE VC, South Korean startup investment fell 19.7% year-over-year in 2024, but AI sector investment rose 41% to 966.6 billion won (approximately $713.5 million). AI’s share of total investment, which hovered at 8–9% from 2021 to 2023, jumped to 16% in 2024 and 23.6% last year. In the first half of this year, AI and robotics investment surged 485.2% year-over-year to 2.685 trillion won (approximately $2.0 billion), expanding to 34.3% of the total.
Valuations Inflated by Policy Capital
The steady migration of private capital toward AI even during the investment winter has been accelerated by large-scale policy fund investments, including from the National Growth Fund. The so-called “AI Big Three”—Rebellions, FuriosaAI, and Upstage—have attracted concentrated National Growth Fund capital.
Rebellions completed a 640 billion won (approximately $472.4 million) pre-IPO round in March, securing a valuation of approximately 3.4 trillion won (approximately $2.5 billion). Of this, 300 billion won (approximately $221.5 million) came from the National Growth Fund (250 billion won, approximately $184.5 million) and the Korea Development Bank (50 billion won, approximately $36.9 million). FuriosaAI is currently conducting a pre-IPO round of 700 billion to 850 billion won (approximately $516.7 million to approximately $627.5 million) at a valuation of approximately 3 trillion won (approximately $2.2 billion), with 400 billion won (approximately $295.3 million) in policy-directed investments allocated, including 370 billion won (approximately $273.1 million) from the National Growth Fund’s Advanced Strategic Industries Fund and 30 billion won (approximately $22.1 million) from the Korea Development Bank. Of the 560 billion won (approximately $413.4 million) raised by Upstage, 130 billion won (approximately $96.0 million) came from the Advanced Strategic Industries Fund and the Korea Development Bank.
According to THE VC data, excluding the Dunamu secondary share acquisition deal, the 13 mega-rounds of 100 billion won (approximately $73.8 million) or more this year totaled 2.452 trillion won (approximately $1.8 billion). Of this, the amounts raised by AI inference neural processing unit (NPU) companies Rebellions and FuriosaAI, along with CXL-based intelligent memory company Exina, totaled 1.242 trillion won (approximately $916.8 million), accounting for 50.7% of the total.
| Company | Amount Raised | Recognized Valuation | Policy Fund Share |
|---|---|---|---|
| Rebellions | 640 billion won (approximately $472.4 million) | ~3.4 trillion won (approximately $2.5 billion) | 300 billion won (approximately $221.5 million) (National Growth Fund 250 billion won + KDB 50 billion won) |
| FuriosaAI | 400 billion won (approximately $295.3 million) (policy direct investment) | ~3 trillion won (approximately $2.2 billion) | 400 billion won (approximately $295.3 million) (Advanced Strategic Industries Fund 370 billion won + KDB 30 billion won) |
| Upstage | 560 billion won (approximately $413.4 million) | Up to 5 trillion won (approximately $3.7 billion) (mentioned for IPO) | 130 billion won (approximately $96.0 million) (Advanced Strategic Industries Fund + KDB) |
| Exina | $135 million (~200–202 billion won) | Undisclosed | None (private VC-led) |
Note: Policy fund shares for Rebellions and FuriosaAI are based on confirmed direct investment amounts in each round; for Upstage, the policy fund portion is separately indicated from the total amount raised.
Valuations Unsupported by Performance
The problem is performance that fails to support the valuations. Rebellions posted 2024 revenue of 32 billion won (approximately $23.6 million) and an operating loss of 120.5 billion won (approximately $89.0 million). FuriosaAI recorded revenue of 5.7 billion won (approximately $4.2 million) and an operating loss of 62.5 billion won (approximately $46.1 million) last year. Upstage’s 2024 revenue was 24.8 billion won (approximately $18.3 million), yet its IPO valuation is discussed at up to 5 trillion won (approximately $3.7 billion). The valuation-to-revenue multiples range from 100x to 500x.
Even though policy funds participate in rounds alongside private investors, critics point out that the injection of massive capital all at once has narrowed the room for price validation.
As policy funds drive AI investment, various institutional fund-of-funds programs are following suit. Korea Venture Investment Corp.’s first regular fund-of-funds commitment this year totaled 1.63 trillion won (approximately $1.2 billion), up 63% year-over-year, with AI convergence and deep tech accounting for 47%. The South Korean postal service agency has set conditions for its second-half AI venture fund commitments requiring fund managers to invest at least 200% of the commitment amount into the AI value chain.
Post-IPO Price Sustainability Is Key
What concerns the investment industry is whether AI sector companies can sustain their unlisted-stage valuations in the public market. Early investors can still realize gains even if the IPO price falls below their recent investment cost basis, but late-stage investors who entered at high valuations cannot even guarantee principal recovery.
An investment industry source said, “Policy funds have driven up valuations, making it burdensome for private capital to follow in. If private money enters at already-inflated prices and the IPO price comes in below that level, the losses fall entirely on private LPs.” The source added, “When LPs ask ‘Don’t you have anything other than AI?’, it ultimately comes down to uncertain exits. There seems to be a growing tendency among LPs to want portfolio diversification beyond AI into other sectors.”
Following these large investments, the commercialization and customer acquisition efforts of these companies are now being put to the test. AI semiconductor companies must sequentially prove not only design performance but also mass production capability, software compatibility, data center customer validation, and global customer acquisition. Physical AI and robotics companies also face the challenge of converting massive R&D spending into enterprise customer revenue and sustainable business models.
Rebellions plans to deploy its raised funds toward expanding mass production of its next-generation NPU “REBEL-100” for large-scale generative AI inference and expanding overseas operations. This month, the company agreed to collaborate with Japanese AI technology firm ai& to deploy rack-type AI inference infrastructure “RebelRack” equipped with its NPUs at a Tokyo data center. FuriosaAI plans to use its investment to expand production of its second-generation AI inference accelerator “RNGD” (Renegade), which entered mass production in January, pursue overseas commercialization, and develop next-generation NPUs. The company is working with global data center operator Equinix to install Renegade servers at a Lisbon, Portugal data center, establishing a performance evaluation environment for European customers.
An industry on a handful of deep tech companies with proven technology and commercialization potential, the investment unit size in South Korea’s VC market is growing. Given the massive capital deployed by the government and private investors, future evaluations will hinge on mass production results, overseas orders, customer expansion, and revenue growth.”
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