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On the afternoon of the 26th, Kang Sung-cheon, Vice Minister of the Ministry of SMEs and Startups, is giving a briefing on "Venture Supplementary Measures for Leapfrogging to the Global Top 4 Venture Powerhouses" at the briefing room of the Seoul Government Complex Annex.
[Photo by Ministry of SMEs and Startups]

[Asia Economy Reporter Kim Jong-hwa] The 'stock option' system, the most powerful talent recruitment tool for venture companies, is undergoing a major overhaul. The government is considering easing issuance requirements such as the eligibility for stock option grants, raising the tax-exempt limit from 30 million KRW to 50 million KRW to reduce tax burdens, and allowing employees to pay capital gains tax instead of earned income tax when disposing of stock options, rather than paying earned income tax at the time of exercise.

Additionally, to ensure the stable growth of venture companies, the sunset clause of the Special Act on Venture Businesses (currently set for 2027) will be abolished, and the maximum limit for technology guarantees will be raised from 10 billion KRW to 20 billion KRW to support the scale-up of promising venture companies with technological capabilities. To expand overseas investment attraction and support for overseas expansion of venture companies, an additional 1 trillion KRW will be raised within the year for a global venture fund.

The Ministry of SMEs and Startups announced on the 26th, during the 44th Emergency Economic Central Countermeasures Headquarters meeting, that it had discussed and finalized the 'Venture Supplementary Measures for Leapfrogging to a Global Top 4 Venture Nation,' jointly prepared with related ministries.

With the recent 'second venture boom' emerging?evidenced by record-high startup and venture indicators despite COVID-19 and positive evaluations of the domestic startup and venture ecosystem by foreign media?the government recognizes the need for an institutional foundation that continuously attracts talent and capital into the venture ecosystem for South Korea to establish itself as a 'Global Top 4 Venture Nation,' and thus prepared these supplementary measures.

The private sector has also consistently called for institutional improvements, presenting opinions such as supporting talent acquisition and overseas expansion of venture companies, fostering a private-sector-led venture investment market, strengthening early-stage startup investment, and diversifying exit methods.

The 'Venture Supplementary Measures for Leapfrogging to a Global Top 4 Venture Nation' prepared by the government focus on strengthening the global competitiveness of venture companies through talent acquisition, institutional improvements for growth, globalization, market expansion through public-private cooperation, and diversification of exit methods.

Strengthening the Global Competitiveness of Venture Companies

First, support measures in four key areas?talent acquisition, growth systems, globalization, and ESG (Environmental, Social, and Governance)?will be established to enhance the global competitiveness of venture companies.

The stock option system will be significantly revamped. The government is reviewing plans to ease issuance requirements such as eligibility for stock option grants and to raise the tax-exempt limit from 30 million KRW to 50 million KRW to reduce tax payment burdens. It will also promote applying special tax treatment on exercise gains for stock options issued below market price. Stock options issued at or above market price meeting certain conditions will allow employees to choose to pay capital gains tax upon disposal instead of earned income tax at exercise. However, the gain portion from stock options issued below market price will be taxed as earned income.

Furthermore, to ensure the stable growth of venture companies, a comprehensive revision bill including the abolition of the Special Act on Venture Businesses' sunset clause (currently 2027) will be prepared within the year to solidify the institutional foundation. The maximum limit for technology guarantees will be raised from 10 billion KRW to 20 billion KRW to support the scale-up of promising venture companies with technological capabilities. The government will also consider piloting the Korean-style M4E (M4E: Marketing for Entrepreneurs) 'Advertising & Marketing Venture Fund,' an equity investment-based advertising support fund to help venture companies with weak capital secure sales channels.

Support for attracting overseas investment and overseas expansion of venture companies will also be expanded. An additional 1 trillion KRW will be raised within the year for the 'Global Venture Fund,' and opportunities for interaction with overseas venture investors will be broadened through events such as the 'Global Corporate Investment Roadshow (IR).'

In line with the global trend of expanding ESG, the ESG competitiveness of the venture industry will be strengthened. The government is considering establishing a climate response guarantee based on carbon value assessment and will pilot an ESG evaluation system in the Korea Fund of Funds to promote the creation of ESG venture funds.

Venture Security Measures Infographic.
[Graphic by Ministry of SMEs and Startups]

Expanding the Venture Investment Market through Public-Private Cooperation

In the venture investment sector, related systems will be improved to encourage more active private sector participation in venture investment, while the government will provide robust support for early-stage startups. Incentives for private investors in the Korea Fund of Funds will be significantly increased so that the private sector can receive higher returns and bear fewer losses than the government. The government will also broaden participation channels in venture investment by allowing in-kind contributions of industrial property rights to venture funds. The criteria for awarding points in the Win-Win Growth Index for large and medium-sized enterprises' venture investments and venture fund contributions will also be improved.

To promote the inflow of overseas venture capital and enhance fund management accountability, the Silicon Valley-style venture fund governance commonly used in the United States will be introduced. The Venture Investment Act will be amended to allow venture capital firms to establish fund management subsidiaries or to set up venture funds without corporate status as corporations or limited partnerships with corporate status.

To increase early-stage startup venture investments, which have been relatively neglected recently, a 1 trillion KRW early-stage startup fund will be established, and incentives for Korea Fund of Funds operators investing in early-stage startups will be increased. To activate startup incubators that primarily invest in early-stage startups, the government will pursue exemption from value-added tax on venture fund management and administration fees for startup incubators and relax the minimum venture fund formation requirement from 2 billion KRW to 1 billion KRW.

Diversification of Exit Methods such as M&A and Sale of Existing Shares

Exit methods, which have mainly focused on initial public offerings (IPOs), will be expanded to include mergers and acquisitions (M&A) and sales of existing shares. A new technology innovation M&A guarantee of up to 20 billion KRW will be introduced, and the M&A venture fund will be doubled from 0.1 trillion KRW to 0.2 trillion KRW to assist companies in securing acquisition funds.

Specifically, for M&A venture funds, restrictions on investments in listed companies will be lifted, and exceptions will be made to allow major shareholders of the acquired company to invest when establishing special purpose companies (SPCs). The scope of exemption from merger notification obligations will also be expanded for venture capital companies and venture funds acquiring venture companies.

M&A tax benefits will continue to be supported. As announced in the July tax law revision, the sunset dates for special tax treatment on stock-swap-type strategic alliances of venture companies and technology innovation M&A will be extended to 2023 and 2024, respectively, and the government plans to relax the tax credit requirements for technology innovation M&A.

A new intermediate exit fund will be established to secure the necessary time for companies invested in by venture funds to grow. The intermediate exit fund will be formed in two types: a 'Limited Partner (LP) Share Liquidity Fund' that acquires the shares of investors in funds nearing maturity, and a 'Venture Reboot Secondary Fund' that acquires non-performing shares held by those funds.

The Special Purpose Acquisition Company (SPAC) system, which is used as a useful means for IPOs and fundraising, will also be improved. Procedures causing business inconveniences due to the disappearance of the merged company during SPAC mergers will be improved, and additional tax deferral benefits for dissolution mergers will be pursued.

Minister Kwon Chil-seung of the Ministry of SMEs and Startups stated, "With the foundation laid by the challenges and efforts of many senior venture entrepreneurs during the 'first venture boom,' the government and private sector have joined forces to create the 'second venture boom.' Today, startups and venture companies have become the backbone of employment and a new growth engine for South Korea." He added, "The Ministry of SMEs and Startups will vigorously implement the 'Venture Supplementary Measures for Leapfrogging to a Global Top 4 Venture Nation' prepared this time to attract talent and capital into the venture ecosystem and contribute to the growth of K-Venture into new global conglomerates."

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