Full Introduction of Conditional Equity Conversion Contract System 'Expecting Investment Vitality'

A 'contingent equity conversion contract' system will be introduced to attract investment for startups. The dual obligations of venture investment companies also serving as startup operators will be resolved. This is a system reform aimed at revitalizing startups and the venture investment market.

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On the 13th, the Ministry of SMEs and Startups announced that the amendment to the 'Act on Promotion of Venture Investment' containing these details was approved at the Cabinet meeting. The contingent equity conversion contract system allows early-stage companies, whose valuation is difficult to determine, to receive loans first and then issue convertible bonds that can be converted into equity when the company valuation is established during investment attraction. From the investor's perspective, the system ensures that principal and interest are guaranteed even if investment attraction fails. This encourages easier investment decisions.

The amendment also resolved the issue of dual regulations applied to venture investment companies and startup operators. When a startup operator also operates a venture investment company, the previously separate regulations were consolidated into one. Investment obligations and activity restrictions were adjusted. Regarding 'investment obligations,' the requirement to invest at least 40% in early-stage startups was relaxed to managing at least one venture investment association aimed at investing in early-stage startups. In terms of 'activity restrictions,' forming private equity funds or acquiring shares of other venture investment companies for mergers and acquisitions purposes is now permitted.

Additionally, the amendment established the basis for hybrid venture finance techniques such as 'investment-contingent loans,' which combine low-interest loans with stock subscription rights to support startup funding, and the establishment of 'special purpose companies' to secure large-scale investment resources for venture investment associations. The name of startup investment companies will also be changed to 'venture investment companies.' The amendment will be promulgated on the 20th and fully implemented from December 21. Minister Lee Young said, “The introduction of advanced venture finance techniques and the easing of investment regulations will help resolve funding difficulties for startups and inject vitality into the venture investment market.”

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