[Have You Tried? Angel Investment] "Don't Aim for Quick Riches... Gain Experience and Develop Insight"

Lecture Attracts Over 100 Attendees... Spotlight on Alternative Investments
Angel Investment Matching Fund Budget Has Been '0 Won' for Years
"Lower Qualification Requirements for Professional Angels but Strengthen Training"

On the 8th, the 'Angel Leaders Forum' hosted by the Ministry of SMEs and Startups was held at Tipstown in Yeoksam-dong, Seoul. It was an event to listen to experts' angel investment know-how and IR presentations from outstanding startups. After being held online only due to the impact of COVID-19, this event was held offline for the first time in 3 years and 4 months, attracting about 100 attendees. People who wanted to become angels investing in early-stage startups or those interested in angel investment attended the forum.

"You Need to Gain Experience Over Many Years and Go Through Trial and Error"

Lee Sang-hak, vice chairman of GoVenture Forum with 20 years of experience as an angel investor who lectured that day, said, "Interest in angel investment has increased significantly compared to before." He added, "As real estate, coins, and stock investments have cooled down, angel investment is being recognized as an alternative investment destination," and explained, "A consensus has been formed that it also helps industrially and nationally." Recently, the government has been introducing various support measures for startups, such as regulatory reforms and global expansion, and angel investment for the country's future development is shining. However, Vice Chairman Lee said, "I want to stop angels who are looking for a quick fortune by carrying lunchboxes around," and added, "You need to develop the insight to identify good companies through diverse experiences and trial and error."

Choi Seong-ho, chairman who founded the 'AI Angel Club' in 2015, also emphasized, "You should not expect to succeed by investing in one or two startups for one or two years." He shared his know-how, saying, "If you invest in a well-selected number of startups over a long period, you can increase the chances of success." Chairman Choi's main profession is a dentist. The AI Angel Club consists of about 30 professionals from various fields such as professors, patent attorneys, and tax accountants. The AI Angel Club invests in various industries including healthcare, which accounts for 40% of the total investment, as well as bio, IT, automotive, and fintech. So far, the AI Angel Club has invested 22.5 billion KRW in 54 companies and recovered 6.7 billion KRW. The invested companies have attracted a total of 187.2 billion KRW in follow-up investments. Next Dream Angel Club (CEO Tae Seong-hwan), which received the Minister of SMEs and Startups Award last year, is also composed of about 140 members including venture capital (VC) analysts, doctors, and lawyers. Established in 2018, Next Dream Angel Club has made early-stage investments in 17 startups, with 10 of them successfully attracting follow-up investments.

One reason why there are many high-income professional angels is the significant tax benefits. If a person with a taxable income base of 300 million KRW after various deductions from annual income invests 100 million KRW, they can receive a deduction of 59 million KRW and save 22.42 million KRW in income tax. By submitting an investment confirmation, salaried workers can get a tax refund during year-end tax settlement, and business income earners can get it during the comprehensive income tax filing in May. However, the securities must be held for at least three years. Otherwise, they will be excluded from income deduction or must return the tax benefits already received. The period for recognizing income deduction on angel investment amounts is up to three years after investment.

To Broaden the Base... Increase Matching Funds and Professional Angels

Angels invest individually or form private investment associations with fewer than 49 members to invest. Since this structure is not systemically managed by the government, investors bear the risks entirely and there are almost no protections for investors. During the bursting of the venture bubble in 2000, many angels suffered losses and trust in the market declined, so apart from expanding tax benefits, no clear government support measures have emerged. Last year, through a legal amendment, the total capital contribution requirement for general partners (GPs) managing private investment associations was relaxed from 5% to 3%. To become a GP, one must be a professional angel and meet other requirements, but general members can be ordinary people.

To revitalize the domestic angel ecosystem, there was an opinion that the 'Angel Investment Matching Fund,' which has become ineffective, should be revived. The Angel Investment Matching Fund refers to a method where the government (Korea Venture Investment Corp.) matches up to 2.5 times the angel's pre-investment. From 2011 to 2015, 16 Angel Investment Matching Funds were formed, but most have been dissolved, and no new funds have been established, effectively disappearing. Initially, the government planned to raise up to 300 billion KRW, but it ended at 195 billion KRW. The industry criticized, saying, "Isn't it that Korea Venture Investment failed to persuade the Ministry of Strategy and Finance to secure the budget?"

There is a significant privilege that companies invested in by professional angels who invest more than 50 million KRW can receive venture business certification. However, to become a professional angel, one must meet strict qualifications such as having investment performance (a total investment amount of 100 million KRW or more in the last three years) and being a professional such as a lawyer, accountant, or holding a doctoral degree. There was also an opinion that these requirements should be relaxed to broaden the base of angel investment. Instead, it was suggested to strengthen the professional angel training system. One angel said, "Investment failure cases should be actively shared along with strategies applicable to practice."

It was also pointed out as a limitation that due to the 'Act on Regulation of Similar Receipt of Funds,' which prohibits raising funds from unspecified many people, promotional activities cannot be conducted, and investors must be recruited through word of mouth. Furthermore, to promote angel investment, the intermediate exit market such as mergers and acquisitions (M&A) needs to be further developed.

In the UK, the government provides income tax reductions and capital gains tax exemptions to angels who invest in government-designated eligible companies and hold shares for more than three years. They also partially compensate for investment losses. If angels hold shares for at least two years before death, inheritance tax relief measures are also applied.