A total of 560 billion won will be invested in domestic AI startup Upstage under the leadership of the National Growth Fund. The government’s position is that it will step up a strategy to localise the AI supply chain from chips to models while also drawing follow-on private investment.

The Financial Services Commission said on May 3 that the National Growth Fund’s Fund Management Deliberation Committee approved on April 30 a direct investment of 560 billion won in Upstage’s project to develop a next-generation AI model to secure sovereign AI. Funding comprises 100 billion won from the Advanced Strategic Industries Fund, 30 billion won from the Korea Development Bank and 430 billion won in private capital from SK Networks, Sage Partners, Woori Venture Partners and Mirae Asset, among others. It is structured as a private co-investment in an investment round led by the National Growth Fund.

Upstage is a startup that develops AI solutions for enterprises and government as well as large language models. In this investment round, its pre-money valuation was assessed at about 1.3 trillion won. The funds will be used to enhance performance of its B2B AI solutions and advance its in-house LLM, Solar. It also began due diligence for the acquisition of AXZ, the operator of portal Daum. The aim is to secure 30 years of data from news, cafes and blogs to strengthen competitiveness of a Korean-language specialised model.

Sung-hoon Kim (김성훈), Upstage’s chief executive, wrote on social media: "In an era when the United States and China are vying for AI hegemony by pouring in astronomical capital, this is a decision for the Republic of Korea to complete technological sovereignty with its own foundation model." He added: "As valuable public funds are being投入, we will 반드시 repay with an AI model that is recognised globally."

The investment is part of the government’s sovereign AI strategy. The government plans to foster Upstage, a domestic LLM developer, to localise an AI supply chain that runs from chips to models to services. The National Growth Fund previously led its first investment of 640 billion won in March in AI semiconductor fabless company Rebellion.

Kyung-hoon Bae (배경훈), deputy prime minister and minister of science and ICT, said: "This investment is a signal flare that will fully scale up the strategy to secure sovereign AI based on domestic technology." He added: "National AI competitiveness is completed when infrastructure and models, data and services, large companies and startups, and the public and private sectors combine into an organic ecosystem."

Expectations are also emerging that it will lead to follow-on private investment. Upstage is aiming for a KOSPI listing in the second half of the year. Its target valuation is up to 5 trillion won. An FSC official said: "This investment decision will lead to full-scale private investment." The official added: "We expect Upstage to strengthen performance of its independent foundation model and secure massive data."

The investment industry is also responding positively. An official at a venture investment firm participating in the second investment said: "It will have a positive impact across the AI ecosystem." The official added: "There are AI companies we are watching closely, and I understand that mega-deals in the form of collective investment are also being discussed in the industry."

Upstage is set to face a second evaluation of Dokpamo in August. On this, an official at the Ministry of Science and ICT said: "There is absolutely no case in which the National Growth Fund investment gives additional points in the Dokpamo evaluation or works in its favour." The official stressed: "The perspective in finance and the perspective in technology are different."

A person at an AI model developer said: "I trust the ministry’s evaluation criteria, but capital投入 cannot help but translate into development competitiveness." The person added: "As the representative startup that entered Dokpamo, Upstage will surpass large companies in terms of LLM development cost alone."