Ministry of SMEs and Startups Strengthens VC Incentives... 10% Increase in Korea Fund of Funds Investment in Rookie League

On the 5th, VC Meeting Held Hosted by Minister of SMEs and Startups
Compensation Standards for Management Companies Also Revised

The government aims to create an environment where venture capitalists (VCs) can invest boldly by strengthening incentives and restructuring the operation of the Korea Fund of Funds (FoF) in a market-friendly manner.

Lee Young, Minister of SMEs and Startups, attended the 'Supergrid Startup 1000+ Project' event held on May 10 at TIPS in Gangnam-gu, Seoul, and listened to the explanation of an endoscopy machine from a startup. Photo by Dongju Yoon doso7@

On the 5th, Lee Young, Minister of SMEs and Startups, held a VC meeting and announced the "Measures to Revitalize Venture Investment."

First, at least 10% of the FoF’s annual contribution will be allocated to the Rookie League. This supports the market entry and stabilization of new VCs. To this end, the eligibility criteria for VCs applying to the Rookie League will be revised from within 3 years of establishment to within 5 years, and the asset under management threshold will be increased from less than 50 billion KRW to less than 100 billion KRW.

Separately from the investment promotion incentives applied to newly established FoF funds this year, funds formed in 2021?2022 will receive preferential treatment in next year’s contribution project selection if they execute early investments this year. The contribution ratio (by 10 percentage points) and management fee rate (by 0.2 percentage points) will also be increased.

The compensation standards for fund managers will also be revised. Management fees will not be reduced in cases of temporary financial deterioration of investee companies. Specifically, if a capital impairment is recognized due to a simple change in accounting standards during the listing process, or if significant follow-up investments are attracted after capital impairment, management fees will not be cut.

The investment direction of the FoF will be discussed jointly by the public and private sectors. A "FoF Contribution Strategy Committee," composed mainly of private experts, will be established. Sanctions for major violations of obligations by FoF funds will also be decided through deliberations by a "FoF Post-Management Committee," which includes private experts.

Korea Venture Investment Corp. will introduce a "responsibility structure chart"?the first among financial public institutions?to enable responsible management and performance creation, and will reorganize its compensation system. Responsibilities for internal controls related to each executive’s duties will be clearly allocated in advance to foster a sense of responsibility among executives.

The VC management and supervision system will also be advanced. Specific standards for sanctions imposed on VCs violating venture investment laws will be established to ensure consistent penalties for future violations.

The government plans to encourage the VC industry to establish internal control guidelines independently. VCs that faithfully comply with these guidelines will receive benefits such as preferential selection in FoF contribution projects and mitigation of sanctions under the Venture Investment Act.

Additionally, for FoF sub-funds, it is recommended in principle to sign Non-Disclosure Agreements (NDAs), and a "comprehensive confidentiality pledge" obligating the maintenance of corporate secrets learned during the investment review process will be mandated. Within the Ministry of SMEs and Startups’ Investment Management and Supervision Division, a dedicated venture investment supervision team will be established, and experts in venture investment-related law and accounting will be expanded.

Minister Lee said, "In the early stages of forming the venture investment market, the government’s initial funding was important, but recently, considering that the private sector’s share has grown to several times the amount of policy finance contributions to venture funds, it is time for the government to reconsider its role in line with the changed market conditions. A private-led venture investment ecosystem is the cornerstone of ‘Startup Korea’ and a country where ventures and startups drive economic growth. We will continue to communicate closely with the industry and do our best to provide policy support that the market needs."

The meeting was attended by Yoon Geon-su, chairman of the Korea VC Association, and representatives from 12 VC firms.

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