This paper examines the effects of Korea’s government-sponsored Fund of Funds, a form of indirect public equity support, on innovation outcomes and capital formation among domestic biotech ventures. We combine firm-level data on venture investment, financial statements, and patents for the period 2000 to 2023 and use a event-study design and a difference-in-differences framework to identify the effects of venture capital backed by the government-sponsored Fund of Funds relative to non-Fund-of-Funds venture capital.

This paper reports that Fund-of-Funds investment is positively associated with innovation and initial public offerings among technologically linked biotech firms, where technological linkages are measured using patent citation networks. The results further suggest that the Fund of Funds is associated with crowding in, rather than crowding out, subsequent private capital, with particularly strong effects among early-stage firms younger than seven years. I also find a positive association with private investment in technologically connected firms. These findings suggest that Fund-of-Funds investment can serve as an effective policy tool for strengthening the dynamism of the innovation ecosystem.

Finally, I discuss several policy implications for revitalizing the venture capital market, including measures to encourage investment in financially constrained early-stage firms, mechanisms to reduce information asymmetries, further regulatory easing, and policies to deepen exit markets.

Abstract (ENG)
Preface
Summary (KOR)
Chapter 1. Introduction

Chapter 2. Overview of VC and Fund of Funds
　Section 1. Patient Capital and Domestic VC
　Section 2. Introduction and Operational System of Fund of Funds
　Section 3. Case Analysis of Major Bio Fund of Funds
　Section 4. Conclusion

Chapter 3. Analysis Data and Descriptive Statistics
　Section 1. Introduction to Basic Data
　Section 2. Descriptive Statistical Analysis: VC Investment
　Section 3. Conclusion

Chapter 4. Empirical Analysis
　Section 1. Introduction to Empirical Model
　Section 2. Analysis of Innovation and Spillover Effects of Fund of Funds
　Section 3. Initial Public Offering (IPO)
　Section 4. Analysis of Crowding-in and Spillover Effects of Fund of Funds on Private Investment
　Section 5. Conclusion

Chapter 5. Conclusion and Policy Implications
　Section 1. Incentives to Strengthen Early-Stage Startup Portfolios
　Section 2. Reducing Information Asymmetry Between Investors and Venture Capital Firms
　Section 3. Deregulation to Stimulate Private Capital Investment
　Section 4. Measures to Further Activate the VC Exit Market

References
Appendix