Amendment to the Enforcement Decree of the Venture Investment Act Passed at Cabinet Meeting
Regulations on Venture Investment Firms and Funds Eased
Requirements for Registration and Operation Relaxed to Expand Venture Investment
Foreign Investors Can Now Contribute in US Dollars Without Currency Exchange
Minimum Size for Private Venture Fund-of-Funds Lowered
Improvements Made to Enhance Investment Autonomy and Facilitate Mergers and Acquisitions
The requirements for registration, operation regulations, and activity restrictions for venture investment entities such as venture capital firms and venture investment funds have been eased. Provisions related to the promotion of mergers and acquisitions (M&A) have also been revised.
The Ministry of SMEs and Startups announced that the amendment to the Enforcement Decree of the Act on Promotion of Venture Investment, which aims to improve the venture investment system and ease regulations, was approved at the Cabinet meeting on July 29 and will take effect immediately upon promulgation.
According to the main changes, first, the requirements for registration and operation have been relaxed to expand venture investment and the establishment of venture funds. The registration requirements for professional individual investors have been eased to enhance accessibility for individuals to participate in venture investment. In addition, when registering private investment associations and venture investment funds, a new basis has been established to allow foreign investors to contribute in US dollars without separate currency exchange, thereby improving convenience for the inflow of overseas funds into venture investment.
To promote the formation of private venture fund-of-funds, the minimum fund size has been lowered from 100 billion won to 50 billion won. Furthermore, when a private venture fund-of-funds invests in a private investment association, which is limited to less than 49 members, the method for counting the number of members has been improved by considering the entire fund-of-funds as a single member, instead of adding up all its members. Investments for management control purposes have been allowed not only in early-stage startups directly selected or nurtured by startup accelerators, but also in prospective entrepreneurs. This is to lay the foundation for activating investments through the establishment of subsidiaries by startup accelerators.
Regulatory improvements have also been made to enhance investment autonomy. If a company invested in by a venture investment fund is later incorporated into a large business group subject to cross-shareholding restrictions, the obligation to sell the stake within five years has been abolished to support smooth recovery of investment capital. Additionally, if a startup accelerator in which a venture capital firm holds shares is registered as a venture capital firm or a new technology business finance company, resulting in the holding of shares in a financial company, a nine-month grace period for disposal of shares will be granted, considering that this constitutes an unintentional violation of activity restrictions.
In addition, when calculating the mandatory investment ratio for M&A funds, loans to the acquiring company will be included along with the acquisition amount. If a venture capital firm acquires non-business real estate as a result of M&A with a new technology business finance company or other venture capital, a grace period will be granted to resolve such activity restrictions, thereby facilitating smooth mergers and acquisitions.
Han Seong-sook, Minister of SMEs and Startups, stated, "This amendment to the Enforcement Decree will serve as an opportunity to expand the inflow of investment capital into ventures and startups and to vitalize the venture investment ecosystem," adding, "We will continue to actively pursue necessary regulatory easing in investment while communicating with the industry to become one of the world's top four venture powerhouses."
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