The Ministry of SMEs and Startups said Friday that it will expand its funding for venture capitals’ investment in startups to a total of 8 trillion won ($5.6 billion) by 2026 to spur startups’ growth.

“Battered by inflation, high interest rates and a strong US dollar, investments into Korean startups are slowing down,” said SMEs and Startups Minister Lee Young. “The country needs a more dynamic ecosystem to boost the startup industry led by the private sector and supported by the government.”

Of the 8 trillion won, the ministry said it will create a new private-led “venture funds of funds,” a pooled investment fund worth around 400 billion won-500 billion won set up by venture capitals who invest in other venture funds.

“Combining the venture funds under the funds of funds, private investment will increase by 1.5 trillion won,” Lee said during a briefing.

Compared to government-led venture funds of funds, Lee said those operated by venture capitals will be more profitable and stable.

As a means to encourage participation from the private sector, the government will give an 8 percent tax credit and an exemption on the value-added tax to venture capitals and asset management firms who set up the new funds.

In order to support the startups’ entry to global markets, the ministry plans to create new “global funds” from the Middle East and Europe. Foreign venture capitals can use the global funds to invest in promising Korean startups.

Lee hinted that the ministry will be networking with Saudi Arabia’s Investment Minister Khalid A. Al-Falih in the upcoming startup festival event Comeup 2022 slated for next week in Seoul.

“Under Saudi Arabia’s Vision 2030, the country created new provisions that allow active investment overseas,” Lee said.

Lee also pledged differentiated financing measures for startups according to whether they are in their early, scaling-up or late stages. In particular, the government will allow financial institutions who granted loans to early-stage startups to be entitled to a future equity stake in the companies in exchange for their current debt.

For mid-stage startups struggling with low budgets, financial companies are encouraged to provide low-interest loans in exchange for the right to be allotted newly issued shares of the startup faster than other shareholders.

Included within the 8 trillion won funding announcement is a public-private 2 trillion won investment dedicated to incubating around 1,000 advanced technology-based startups for the next five years, which was announced on Thursday.