[2025 Audit] Unfair Contracts Found in Government-Backed Funds... "Venture Investment Promotion Act Needs Improvement"

Startups Required to Compensate Funds for IPO Failure
Lee Jaegwan: "Insufficient Oversight of Unfair Contracts in Publicly Funded Venture Funds"

Concerns have been raised that so-called "poison pill" clauses containing unfair terms for startups are being included in venture investment funds that receive government capital contributions. Even funds backed by public money have come under scrutiny for unfair contract practices, such as demanding compensation for losses from companies on the grounds of business failure.

On October 23, at the National Assembly's Trade, Industry, Energy, SMEs and Startups Committee audit in Yeouido, Seoul, Assemblyman Lee Jaegwan of the Democratic Party of Korea stated, "Recently, there have been frequent cases where fund managers include poison pill clauses in contracts with startups, requiring companies to pay damages if they fail to go public through an IPO. As a result, disputes between investors and early-stage companies are occurring one after another."

Assemblyman Lee added, "What is even more serious is that these types of contracts are not just limited to private funds, but are also being repeated in funds with government capital. One fund manager even filed a lawsuit based on a clause requiring the company to pay back the principal and an additional 20% in damages per year if it failed to go public by 2022." It was revealed that this fund manager had operated with 81.8 billion won in government contributions over the past 10 years.

Lee Daehee, CEO of Korea Venture Investment Corp., explained, "In the case of sub-funds, the contract must be submitted when it is signed. However, in the case you mentioned, only about 3% of the capital came from the Korea Fund of Funds, so we could not enforce the terms."

Assemblyman Lee also pointed out, "The 'Unfair Contract Reporting and Support Center' established by the Ministry of SMEs and Startups to address these issues is effectively inactive. Legal measures, such as strengthening the Venture Investment Promotion Act, are needed to prevent unfair transactions."

Kim Woojoong, Director General for Planning and Coordination at the Ministry of SMEs and Startups, responded, "We will review the issues you have raised and prepare improvement measures."

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