[Reporter’s Notebook] The Paradox of the Venture Investment Promotion Act That Hinders Innovation

"Some deep tech companies spend as long as three years just preparing for business. By the time they're finally ready, there are often few investment opportunities left."

This is according to a professional in the accelerator (AC) industry. By law, ACs are required to invest at least 40% of their total investment capital in early-stage startups that are less than three years old. The Venture Investment Promotion Act defines ACs as corporations or non-profit organizations whose main work is professional incubation and investment, reflecting the intention that they should exist primarily to foster early-stage companies.

The problem is how such regulations affect ACs. The restriction on investing only in companies within three years of founding means that promising businesses often have to be let go before investments can even be made. For example, a university professor may have established a corporation for the purpose of securing research grants but is not in a position to operate the business immediately, or there may be startups that grow for a certain period without receiving external investment. As ACs grow and their available resources increase, it becomes even more difficult to meet the mandatory investment ratio.

Fortunately, the Ministry of SMEs and Startups announced at the beginning of the year its intention to address this issue. In response, the National Assembly introduced an amendment to expand the mandatory investment targets of ACs where legislative changes are needed. The amendment broadens the scope of mandatory investments to include both early-stage startups and companies founded within the last five years that have not previously received investments, as well as follow-up investment companies (with less than five years of business history), thereby expanding the target group compared to before. Industry insiders believe this will be effective, highlighting just how valuable the increased number of eligible companies is.

However, the industry points out that more fundamental change is needed. They argue that investment autonomy must be the foundation for generating returns and creating a virtuous investment cycle. Various proposals—such as allowing unconditional follow-up investments in well-discovered companies, removing the five-year limit for early-stage startups, and reducing the mandatory investment ratio—underscore the need for structural improvements.

Yet, structural discussions are not even underway, and the proposed amendment in the National Assembly is also expected to progress slowly. For the time being, standing committees are likely to be preoccupied with discussions over the supplementary budget, and lawmakers may find it difficult to focus on legislative work as they support their constituencies ahead of the local elections in June.

One industry figure commented, "For early-stage investments to succeed, the competitiveness of early-stage investors themselves is critical." In other words, a solid foundation for ACs is essential for the continued revival of early-stage startups. This is also why many ACs are now looking to venture capital (VC) and private equity (PE) as they grapple with concerns about long-term sustainability.

The government has even launched the 'Leap to Become One of the World's Top Four Venture Powerhouses' initiative, aiming to revitalize the venture industry. However, the longer it takes to resolve regulatory bottlenecks, the longer it will take for Korea to join the ranks of the world's top four venture powerhouses.

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