Increasing Number of Capital-Impaired VCs... Asia Venture Investment and Neo Insight Ventures in 'Crisis'

Neo Insight Ventures Faces Double Blow:
No Investments for a Year, Now Capital Impairment
“Even Operators With Large AUM Struggle in Today’s Market”

The number of venture capital (VC) firms falling into capital impairment is increasing. Although they are being urged to improve their management, they are struggling to escape the crisis. In the worst-case scenario, some are expected to fail to recover from capital impairment and may even have to return their venture capital company licenses.

According to the electronic disclosure system (DIVA) for small and medium enterprise venture capital companies as of June 2023, two VC firms-Asia Venture Investment and Neo Insight Ventures, an affiliate of the logistics company NBV Networks-received corrective orders from the Ministry of SMEs and Startups (MSS) due to “capital impairment.”

Under Article 41, Paragraph 2 of the Venture Investment Promotion Act, venture capital companies are required to meet management soundness standards. The Enforcement Decree of the Act sets “a capital impairment ratio of less than 50%” as the management soundness standard. The MSS may impose measures necessary for management improvement, such as increasing capital or restricting profit distribution, on operators who fail to meet the standard.

These firms must reduce their capital impairment ratio to below 50% within three months. If they fail to meet the deadline for the first corrective order, they receive a second corrective order with a maximum extension of six months. They are also penalized when attracting funds from limited partners (LPs). If the management soundness standard is still not met during this period, a hearing is held to determine whether to revoke the VC company’s registration.

In particular, Neo Insight Ventures is facing a double blow. Recently, it received a corrective order from the MSS for “no investment for one year,” as it had not executed a single investment since its launch in January last year. Just days after receiving this corrective order, the risk of capital impairment also emerged.

Neo Insight Ventures applied for VC company approval from the MSS and joined the Korea Venture Capital Association as a full member. Despite its efforts to enter the institutional market, it failed to carry out venture investments-the core function of a VC-and has now fallen into capital impairment.

Last year, firms such as Two Sun Invest, Unicorn Nest Venture Investment, Darwin Investment, NPX Ventures, TGCK Partners, and PNP Investment also fell into capital impairment. Among them, Unicorn Nest Venture Investment and NPX Ventures still have not recovered from capital impairment.

A venture capital industry insider commented, “Currently, the market situation is so challenging that even operators with a considerable amount of assets under management (AUM) are struggling to survive. Those without funds, or those who have funds but cannot execute investments easily, will inevitably be weeded out.”

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