[Edaily Marketin Soyoung Park Reporter] South Korea’s impact investment industry is entering its “second act.” For the past two decades, the industry has focused on identifying and investing in companies that address social issues. However, investment strategies are now diversifying, with firms partnering with overseas investment firms to expand their investment regions or directly building ecosystems within local communities. Some firms are even planning to directly acquire local companies that have been unable to find successors. Attention is focused on whether impact investment firms will establish themselves as key players in designing regional and industrial ecosystems, moving beyond their role as mere providers of capital.

According to the domestic investment banking (IB) industry on the 12th, there is a growing consensus that domestic impact investment firms have reached a point where they must identify their next growth engine. This is because the domestic impact investment market has expanded significantly.

According to the Korea Capital Market Institute, in 2004 there were seven domestic impact funds with assets under management (AUM) totaling 100 billion won. Twenty years later, in 2024, the number of funds had increased to 301, and AUM had grown to 6.65 trillion won. The Korea Capital Market Institute assessed that domestic impact investing is moving beyond the ecosystem-building phase and shifting into a phase of scale expansion.

In fact, domestic impact investment firms are each devising new growth strategies. Among them, a significant number of firms cite global collaboration as a key growth driver.

For example, a notable trend is the move to establish co-general partner (Co-GP) funds with Japanese venture capital (VC) firms. This approach involves leveraging the respective networks of fund managers from both countries to jointly identify startups in Korea and Japan and support them through follow-on investments and market entry in their home countries. Strategies to expand impact beyond Korea and Japan by making joint investments in third countries, such as Southeast Asia, are also being considered.

Strategies to delve deeper into “regions” have also emerged. This involves adapting the Japanese model—where private investment firms and corporations partner with local governments and local businesses to build a venture ecosystem—to the domestic market. One example is the venture studio strategy aimed at fostering regional industries. The South Korean company CSP plans and executes brand, space, and content initiatives simultaneously. It directly creates and operates business models based on local assets, and if their effectiveness is proven, it nurtures them into independent businesses.

An official in the venture capital (VC) industry stated, “We are looking for opportunities to collaborate with impact-driven companies that employ this business model (BM) to identify problems facing local communities and directly nurture startups capable of solving them,” adding, “This allows us to move beyond simply disbursing investment funds and simultaneously drive local job creation.”

Going a step further, some firms are even eyeing the role of private equity fund (PEF) managers. In rural areas, there are many small and medium-sized enterprises (SMEs) and mid-sized companies that, despite having business potential, are struggling to survive due to aging management and a lack of successors. The approach involves acquiring these companies, connecting them with new management teams, and ensuring business continuity to preserve local jobs and the industrial base.

The CEO of one such firm told Edaily, “This is a trend that has already been established in Japan for the past 10 years,” adding, “We plan to establish a separate legal entity within the local community that specializes in this work, creating a structure that enables the merger or public listing of various companies.”

Some observers argue that as the market expands, there remain challenges to address alongside the diversification of investment strategies. For example, the Korea Capital Market Institute stated that for the domestic impact investment market to grow in earnest, issues such as △a shortage of capital supply, △a lack of standards for measuring social impact, △uncertainty regarding returns, and △a shortage of viable impact startups must be resolved.

An industry official commented, “The next 10 to 20 years should be a phase focused on strengthening our ability to build global networks and local ecosystems, as well as developing diverse financial techniques to demonstrate both financial performance and social impact,” adding, “In particular, I believe there is a need to establish stable exit strategies following investment.”