[Reporter’s Notebook] "Half-Measure" Venture Deregulation: If You're Going to Ease the Rules, Do It Right

"Although the eligible investment targets for meeting the investment obligation have been expanded to include startups in their fifth year after founding, limiting the measure to companies with no prior investment and, moreover, to individual investment associations is utterly unrealistic."

At a recent seminar hosted by the Korean Economic Association, Lee Yong-gwan, CEO of Bluepoint Partners, pointed to the structural limitations preventing the government's measures to ease venture investment regulations from working in the market. Although the law was amended to ease the mandatory investment requirements for accelerators (ACs) investing in early-stage companies, it remains difficult to deploy funds effectively in the field, he said.

Under the Venture Investment Act, ACs must invest at least 40% of their investment capital in early-stage startups. The government amended the Act in response to criticism that institutional constraints were causing companies to miss out on funding opportunities. The amendment expanded the companies eligible for ACs to count toward their mandatory investment requirements from those founded less than three years ago to those founded less than five years ago.

However, the market response has been cold. To meet the mandatory investment ratio, ACs must invest only in companies founded less than five years ago that have no prior investment history. This makes it difficult for companies that have received initial funding and urgently need follow-on investment to get through the valley of death to secure AC investment, because they already have a record of prior investment. It is extremely rare for deep-tech startups to survive independently without an infusion of external capital until they reach their fourth or fifth year.

Restricting AC investment vehicles to individual investment associations also undermines the policy's effectiveness. To invest in companies founded less than five years ago with no prior investment history, ACs must invest "only through individual investment associations." Investments made through venture investment associations do not count toward the mandatory investment ratio. Individual investment associations also tend to invest relatively small amounts. Given the difference in scale between individual investment associations, which require at least KRW 100 million in contributed capital, and venture investment associations, which require at least KRW 2 billion, it is problematic to allow investment in deep-tech fields—which require tens to hundreds of billions of won for research and development (R&D)—only through individual investment associations.

One might argue that venture capital (VC) firms can make the investments, but that is far removed from market realities. Early-stage companies accounted for just 18.9% of investments. Early-stage startups without clear revenue metrics struggle to get past the barriers to securing investment from general VC firms.

If regulations are to be eased, the changes must reflect market demand for capital and the mechanisms at work on the ground. A policy that expands the range of eligible investments but restricts access to funding cannot be expected to make a tangible difference. Further measures must follow to genuinely ease the constraints on the market, such as allowing the use of venture investment associations and relaxing the restriction on prior investment history.

This content was produced with the assistance of AI translation services.