[Exclusive] Startup Accelerator Drafts 'Management Transfer Agreement' with Portfolio Company While Concealing from Mother Fund

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Tab Angel Partners (hereinafter referred to as Tab Angel), a startup accelerator (AC) that manages funds from the Korea Fund of Funds, was found to have drafted an agreement in which it effectively took over the management rights of a portfolio company in exchange for concealing the company’s accounting fraud. In this process, it was also revealed that a confidentiality agreement was signed to prevent the contents of the agreement from being released to the public.

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According to the investment banking (IB) industry on April 21, Tab Angel drafted a stock transfer agreement with CEO Jeong of the drone manufacturing company Intosky in November last year.

According to the agreement, CEO Jeong must transfer approximately 77% of Intosky shares he owns to Tab Angel or a party designated by Tab Angel upon request. This effectively allows Tab Angel, as the general partner (GP) managing the fund, to control both the management rights and ownership of its portfolio company.

Tab Angel is an AC based in Incheon that supports startups. It is also an operator of the 'TIPS' program run by the Ministry of SMEs and Startups. Earlier this year, it was also selected as the operator for the 'LIPS' program, which connects investments to small business owners, and 'Scale-up TIPS,' which targets companies in the growth stage. As of the end of last year, it had formed investment associations totaling 55 billion won and had invested in 64 companies. In terms of scale, it ranks among the top ACs in Korea.

Previously, in 2023, Tab Angel invested in redeemable convertible preferred shares (RCPS) of Intosky through the 'Tab Angel Partners Incheon Innovation Startup Investment Association No. 2' and 'Tab Angel Partners ESG Investment Association No. 7.' The combined stake of the two funds is about 5.3%. Among these, the Incheon Innovation Startup Investment Association No. 2 is a fund to which the Korea Fund of Funds contributed 4 billion won.

The background to CEO Jeong signing the stock transfer agreement with Tab Angel appears to be the inclusion of a condition that Tab Angel would not raise issues about internal wrongdoing within the company.

In the first clause of the agreement, CEO Jeong stated, "As the representative of Intosky, I express deep regret regarding the double remittance incident and the accounting fraud committed to cover up the incident. As the person with ultimate responsibility for this matter, I am entering into this agreement with Tab Angel."

In particular, Tab Angel did not share the existence or content of this agreement with either the fund's limited partners (LPs) or the other shareholders of Intosky. The LPs of the fund include the Korea Fund of Funds, and among Intosky's shareholders is the Korea SMEs and Startups Agency.

Furthermore, Tab Angel included a clause in the agreement stipulating that a penalty of 500 million won would be paid if the contents were disclosed externally. This suggests an awareness from the outset that the leak of the agreement itself could be problematic.

In response, Tab Angel stated, "Intosky was experiencing difficulties and was in the process of pursuing a merger and acquisition (M&A). The strategic investor (SI) reviewing the acquisition requested such an agreement as part of the contract process, so it was drafted accordingly." The company added, "Before drafting the agreement, we sufficiently shared the details with other investors and shareholders of Intosky and obtained their tacit consent."

They further explained, "Since the M&A did not actually take place, it was not necessary to report the matter to the Korea Fund of Funds," adding, "The reason Tab Angel, and not the fund, is the party to the agreement is because the contract was executed in our capacity as the general partner (GP)."

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