The Ministry of SMEs and Startups (Minister Han Sung-sook, hereinafter referred to as the Ministry of SMEs and Startups) announced that the revised Enforcement Decree of the Act on Promotion of Venture Investment, which increases the corporate investment limit for private investment associations that focus on investing in regional start-up companies, will take effect on Tuesday, August 5.
Private investment associations are funds formed primarily by individuals through mutual contributions to invest in startups and venture companies. However, when formed by a startup planner, a corporate contribution of up to 30% of the fund's initial investment amount is permitted, allowing for expansion of the fund's scale, taking into account investment expertise and operational capabilities.
This amendment was designed to increase the autonomy of fund management by expanding the corporate contribution limit to 40% of the formation amount when a startup planner forms a private investment association for the purpose of investing in local start-up companies.
In addition, considering that the proportion of investments in companies located outside the metropolitan area by private investment associations invested by local governments, etc. is approximately twice as high as the proportion of investments in companies located outside the metropolitan area by all private investment associations, in cases where local governments or local public enterprises invest more than 20% of the formation amount in private investment associations, corporate investments of up to 49% are permitted.
This system improvement is expected to expand the scale of private investment associations investing in startups outside the metropolitan area, thereby helping to alleviate the difficulties companies face in securing funds in the early stages of growth.
Meanwhile, this amendment also provides a basis for converting and registering a new technology business investment association operated by an existing new technology business finance company into a venture investment association in the event that the venture capital company becomes the surviving corporation through a merger or acquisition between the two.
Venture capital associations must apply for registration with the Ministry of SMEs and Startups within 14 days of their formation general meeting. However, considering that new technology business investment associations currently in operation have already been formed, the procedural burden is alleviated to allow registration as venture capital associations with only the consent of all existing members without the need for re-formation procedures after dissolution, thereby improving convenience in fund management.
Minister Han Seong-sook said, “We expect that this revision will stimulate the inflow of funds into private investment funds investing in non-metropolitan areas and expand investment in local startups,” adding, “We will continue to actively support reasonable improvement of investment regulations to revitalize the local venture ecosystem.”
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