"Overseas Venture Capital Flows into Korea"…Adoption of Silicon Valley-Style Governance Structure

Ministry of SMEs and Startups Announces Advancement of Venture Fund Governance
Overseas Benchmarking... Introduction of General Partner System
Focus on Discovering and Evaluating Investee Companies... Enhancing Expertise and Responsibility

[Asia Economy Reporter Kim Bo-kyung] The government is pushing to introduce the 'General Partner Company' system domestically to adopt Silicon Valley-style venture fund governance. This is expected to enhance the professionalism of venture investment fund management and promote the inflow of overseas venture capital into the domestic market.

The Ministry of SMEs and Startups announced on the 6th that it is promoting the establishment of a system allowing venture capital companies to set up subsidiaries called General Partner Companies to manage funds.

A General Partner Company is a company established by venture capital firms, etc., solely to form and manage venture investment funds.

◆Resolving On-site Difficulties... Advancing Venture Investment Systems= Venture investment performance reached 4.6158 trillion KRW by August this year, surpassing last year's record high of 4.3045 trillion KRW four months ahead of schedule, signaling a second venture boom.

Amid this, the Ministry of SMEs and Startups plans to accelerate efforts to elevate the domestic venture ecosystem to the level of advanced overseas countries by introducing Silicon Valley-style venture investment fund governance.

The introduction of this system began as a review to resolve on-site difficulties caused by differences between domestic systems and overseas fund governance structures.

In overseas markets including Silicon Valley in the United States, a special purpose company (SPC) is separately established as a General Partner (GP) for each individual fund to carry out fund formation and management tasks.

In contrast, in Korea, a single venture capital company manages multiple funds simultaneously. This difference in domestic and overseas fund governance structures has acted as an obstacle for foreign investors wishing to invest in domestic funds.

Foreign investors with limited understanding of the domestic venture investment system required extensive legal advice and review, which caused some delay in fund investment decisions.

◆Expectations for Activation of Overseas Venture Capital Inflow= The Ministry of SMEs and Startups is promoting the introduction of the General Partner Company system by benchmarking overseas cases and adapting them to the domestic institutional environment through amendments to the Venture Investment Act.

Venture capital companies will establish General Partner Companies as subsidiaries, which will form and manage venture investment funds as General Partners (GPs). The funds will enter into management contracts with the venture capital companies, outsourcing management tasks to them.

This system is expected to further activate the inflow of overseas venture capital into the domestic venture investment market.

Additionally, management personnel will be able to focus on discovering and evaluating investee companies without being burdened by management tasks, enhancing professionalism. The fund’s profits will be directly linked to the incentives of the management personnel, preventing conflicts of interest with other partners and strengthening responsible management.

Yang Seung-wook, head of the Venture Investment Division at the Ministry of SMEs and Startups, stated, "We will steadily implement supplementary venture measures to elevate the domestic venture ecosystem to the level of advanced overseas countries like Silicon Valley and establish an institutional foundation for domestic companies to grow into global unicorns."

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