Innovation in Mother Fund Management Fee System... "Supporting Venture Investment"

Ministry of SMEs Revises 'Impairment Loss Guidelines'
Considering Characteristics of Early-Stage Companies with Difficulties in Generating Sales

The Ministry of SMEs and Startups announced on the 6th that it will revise the 'Impairment Loss Guidelines,' which serve as the basis for calculating management fees for the Fund of Funds under the Korea Fund of Funds.

Provided by the Ministry of SMEs and Startups

This is a follow-up measure to the 'Advanced Venture Investment Market Leap Plan' announced last October. The management system for the Fund of Funds under the Korea Fund of Funds has been restructured to be more market-friendly so that venture capitalists (VCs) can continue making challenging investments. The revised measures will be applied starting from the accounting audit of the Fund of Funds under the Korea Fund of Funds conducted last year.

First, if management improvement of the investee company is expected, it will be allowed to defer the reduction of management fees under the review of the auditor. This supports the stable operation of the Fund of Funds by preventing management fees from being reduced due to temporary capital impairment of the investee company.

For companies within five years of establishment, the regulations on management fee reductions due to deterioration of financial statements will not be applied exceptionally. This takes into account the characteristics of early-stage companies that find it difficult to generate sales.

Additionally, if management fees were reduced due to capital impairment of the investee company but the investment was later recovered, the previously reduced management fees will be paid retroactively. The intention is to pay management fees based on the company value recognized in the market rather than solely on the financial statements.

The requirements for 'significant follow-up investment' that restore management fees will be relaxed. Previously, only equity investments were recognized, but now convertible bonds (CBs), Simple Agreements for Future Equity (SAFE), and others will be broadly recognized. A new monetary requirement (3 billion KRW) will be added alongside the existing equity ratio requirement (3%).

Oh Young-joo, Minister of SMEs and Startups, said, “This revision of the impairment loss guidelines was prepared to fully support VCs in fulfilling their core role of venture investment even during difficult times of domestic and international uncertainties,” and added, “We expect that this guideline revision will enable VCs to invest more actively in early-stage companies.”

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