"Venture Capital Facing Downturn... Need for Introducing Overseas Cases and Regulatory Relaxation"

National Assembly Forum for System Improvement Held
"Concerns Over Growth Slowdown Due to COVID-19 and Others"

[Asia Economy Reporter Kiho Sung] There have been calls for institutional improvements to the 'securities-type crowdfunding' and 'venture startup specialized private equity fund' systems, which were introduced to assist startup companies that have difficulty accessing funds from regulated financial institutions. Although these two systems have positive effects, concerns about growth stagnation have arisen recently due to COVID-19 and sluggish institutional improvements. Experts advised actively adopting overseas cases and easing regulations.

On the 29th, National Assembly members Kwanseok Yoon, Byungwook Kim, and Hyungbae Min of the Political Affairs Committee held a forum titled “Capital Market Development Plan for Supplying Venture Capital to Venture Companies.” The forum was jointly attended by the Korea Fintech Industry Association, the Korea Financial Investment Association, and the Korea Startup Forum.

Dr. Yeonim Lee of the Korea Financial Investment Association, who presented at the forum, stated about the current status of domestic venture capital supply, “Securities-type crowdfunding, introduced about five years ago to revitalize funding for startups and venture companies and to protect investors in high-risk products, should have entered a growth phase after the introduction period, but it is currently experiencing a severe slump. Along with the Financial Services Commission’s initiatives and the amendment bill proposed by Representative Hyungbae Min, we discuss key issues and suggest improvement measures for the continuous development of the crowdfunding industry.”

Securities-type crowdfunding is a funding method where startups and venture companies issue securities through online public offerings to multiple investors to receive small investments. It was institutionalized through the amendment of the Capital Markets Act on January 25, 2016. Since its introduction, it has emerged as a useful funding channel for startups that had difficulty raising funds from regulated financial institutions and has had positive effects such as allowing individual investors to directly acquire startup stocks. However, concerns have been raised about growth stagnation recently due to the impact of COVID-19 and sluggish institutional improvements.

The venture startup specialized private equity fund system was also implemented as a special case under the Capital Markets Act in January 2017 and attracted significant interest from the early venture investment industry. However, due to strict qualification restrictions and relatively limited tax benefits compared to other systems, its utilization rate is low, prompting calls for improvement.

Professor Changmin Cheon of the Department of Business Administration at Seoul National University of Science and Technology pointed out the need to actively adopt overseas cases and improve the system regarding venture capital. Professor Cheon explained, “Domestically, securities-type crowdfunding allowing the use of organizations, which is commonly found in improvement trends in the United States and the European Union (EU), is not included. It is necessary to review the pros and cons of this and make policy judgments accordingly. Also, a more progressive consideration regarding the scope of issuable securities is deemed necessary.”

Regarding the venture startup specialized private equity fund, he emphasized, “It is necessary to improve it so that it can serve as a tool to activate the supply of venture capital to startups and venture companies in line with its original purpose. To further revitalize the venture startup specialized private equity fund system, it is necessary to avoid classifying it as a type of institutional private equity fund.”

Dr. Lee also stated, “As a measure to revitalize the securities-type crowdfunding industry, it is necessary to improve issuance limit management standards for efficient corporate funding support and to ease regulations on intermediaries so that they can play a leading role in industry activation. To implement a meticulous investor protection system, we propose improvements such as mandatory membership of intermediaries in self-regulatory organizations.”

Meanwhile, in the subsequent forum, Dr. Minseop Yoon of the Korea Financial Consumer Protection Foundation served as the chair, with participants including Seongbeom Go, Director of Asset Management Division at the Financial Services Commission, Dr. Seungwook Bae of Korea Venture Investment Corp., Dr. Sumi Na of the Small and Medium Business Research Institute, and Attorney Jeongeun Jang of Wadiz, who engaged in discussions.