[Editorial] Venture ecosystem

Government agencies are competitively pouring out measures geared toward venture companies. Economy-related ministries invariably present plans aimed at supporting venture businesses when they report their 2013 business plans to President Park Geun-hye.

The policy focus on venture companies is natural as Park’s vision of building a “creative economy” cannot be attained without a prosperous venture sector.

A creative economy is driven primarily by a brisk commercialization of innovative ideas, a job that is best done by venture entrepreneurs willing to take risks.

Yet the government’s zeal to foster venture firms is reminiscent of the venture boom a decade ago. At the time, the government rushed to support venture businesses in a desperate effort to lift the nation from a devastating economic crisis. Yet the boom was short-lived; it ended when the dot-com bubble burst in 2003.

To be sure, the new government’s approach is more refined than the one used a decade ago. But policymakers appear to have forgotten one of the key lessons of the dot-com debacle.

The venture policy of the early 2000s failed not because funding from the government was insufficient. The boom was unsustainable because it was not underpinned by a viable venture ecosystem.

Ten years on, the ecosystem for venture firms still remains fragile and lacks some of the essential elements. For instance, there are not enough angel investors in Korea. Angel investment plunged from 97 billion won in 2006 to about 14 billion won last year.

In this regard, it is inevitable for the government to play a role in the ecosystem. Otherwise, the system would not function in the first place. But the government should limit its role to catalyzing private investment and focus more on cultivating private players that can take its place.

One government agency that needs to bear this point in mind is the Financial Supervisory Commission, which unveiled a wide array of measures Wednesday.

The commission said it would set up funds designed to provide financial support to venture companies at each stage of their growth from pre-start-up preparations to initial public offering.

State-run funds can play a role in supporting venture companies. But they cannot be a substitute for private investment.

One drawback of public funds is that once they start to support a company, they tend to continue to do so, regardless of its viability. This is why there are so many zombies among small and medium enterprises in Korea.

The FSC should focus on creating a vibrant capital market instead of seeking to expand the provision of taxpayers’ money to venture companies.