As real estate project financing (PF) and household loan access tighten, capital firms that invested in artificial intelligence (AI) and deep tech funds are facing mounting concerns. With high interest rates locking up funds raised through capital bonds in private equity for extended periods, the uncertainty surrounding investment recovery is creating additional liquidity risks that threaten the stability of these firms.
According to the financial investment industry on October 27, specialized financial companies, whose main revenue sources have been hindered by the suspension of real estate PF loans and household loan regulations, have significantly increased their participation as limited partners (LPs) in venture capital (VC) and private equity funds over the past one to two years.
However, the funds raised through high-interest capital bonds are now tied up in private equity for long durations, leading to serious side effects. Contrary to initial expectations, the exit timelines for fund investments have lengthened, causing a continuous accumulation of costs associated with delayed recoveries, which directly undermines the financial health and stability indicators of these firms.
The fundamental cause of this uncertainty in recoveries lies in the valuation bubble created by mandatory fund execution deadlines. Due to regulations requiring the deployment of venture fund investments (typically within four to five years), while capital has accumulated, only a handful of promising startups capable of absorbing large investments exceeding 10 billion won exist.
Under pressure from funding deadlines, VCs and capital investments have excessively concentrated on AI fabless companies that have completed pre-IPO funding. Recently, even early-stage robotics startups without sales or commercialization achievements have been recognized with pre-investment valuations ranging from 150 billion to 200 billion won, indicating signs of overheating in the market. Concerns have been raised that the fear of missing out (FOMO) among investment analysts is leading to inflated valuations.
A source from the investment banking (IB) sector stated, "As general partners (GPs) must align fund maturities with investment obligations, they have flocked to areas where they can invest, resulting in a bubble where valuations soar exponentially with each funding round, rather than based on performance."
Not only have valuations been inflated at peak levels, but the harsh realities of the market are now hindering exit opportunities. Questions about global AI profitability and the clear limitations of the domestic KOSDAQ market are contributing factors.
Currently, new listings on the KOSDAQ are limited to around 80 to 100 annually, with public offering amounts hovering around 2 to 3 trillion won, indicating that the market is too small to accommodate AI unicorns valued in the trillions.
As the situation worsens, the VC industry is appealing for government support to defer the maturity of large funds expected to hit in 2028 through the establishment of a 30 trillion won KOSDAQ revitalization fund or a public secondary fund.
A securities firm representative warned, "Investments in AI and deep tech equity, which were seen as alternatives to real estate PF, have become another liquidity risk amid high interest rates and stagnation in the IPO market. Without realistic adjustments to high valuations in the field, both specialized financial firms and VCs will face significant provisions for bad debts and valuation losses when fund maturities arrive in the coming years."
* This article has been translated by AI.
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