Expansion to 5th-year start-up companies subject to investment
In the future, the ratio of investment obligations (20%) for start-ups and venture companies will be abolished in individual investment associations that invest in early start-up companies. The fund investment obligation, which was limited to companies with a third year of business, will also be expanded to start-up companies with a fifth year of business.
The Ministry of SMEs and Startups announced on the 23rd that the revised Act on Promotion of Venture Investment and the Enforcement Decree of the Special Act on Promotion of Venture Business, which improves the venture investment system as a follow-up to the "Comprehensive Measures for Leaping the Four Venture Powers" announced last year, passed a Cabinet meeting.
In this enforcement decree, the obligation to invest in start-ups and venture companies, which was applied to individual investment associations operated by start-up planners, was removed. Previously, 20% of the regulations had to be set for each fund, but in the future, 40% of the investment will be applied based on the total amount of funds held by the management company, enabling flexible management of each fund. The industry has pointed out that applying the standards for each fund has difficulties such as having to make investments to companies with low potential to meet the ratio.
The investment obligations will also increase. Previously, the fund could only invest in companies within their third year of business, but in the future, if there is no record of attracting investment, it can also invest in start-up companies with five years of business. The Ministry of SMEs and Startups explained, "It has eased the financing burden of promising companies with technology." The amendment also raised the upper limit of the proportion of individual investment associations when investing in listed corporations from 10% to 20%.
If venture capital (CVC) and investee companies belonging to large corporate groups belong to the same large corporate group after death, a grace period for disposal of the investee's stake will also be granted for nine months. It is a measure to improve the conditions for CVC's return on investment.
In the amendment, in order to revitalize fintech investment, the range of fintech-based financial services that venture investment companies can exceptionally acquire was reorganized from the existing "industry" standard to the "authorization or registration" standard.
The parent fund management regulations and venture investment management system will also change. The amendment included procedures and grounds for allocating and paying investment principal and profits to members who wish to withdraw from the parent fund when it extends its duration.
The Ministry of SMEs and Startups also decided to designate the first week of December as "Venture Company Week" every year to reward excellent venture companies and to re-examine the performance of venture companies.
The revision of the enforcement ordinance will take effect on July 1. However, among the amendments, the dissolution, liquidation, and regular inspection of venture companies and venture investment associations will be delegated to local small and medium-sized venture businesses from January 1 next year.
"This revision of the enforcement ordinance is the result of improving regulations so that the venture investment market can operate more autonomously and flexibly," said Minister of SMEs and Startups Seong Sook Han. "We will continue to make efforts to ensure that private funds can flow actively into ventures and startups."
