On the 7th, the Ministry of SMEs and Startups announced on the 6th that it has revised the 'Impairment Loss Guidelines,' which serve as the basis for calculating management fees for venture funds under the Mother Fund, and that these changes will be applied starting from the accounting audit of venture funds in 2024.
This is a follow-up measure to the 'Plan for Advancing the Venture Investment Market' announced in October of last year, aimed at enabling venture capital to continue making challenging investments amid a situation where investment in early-stage corporations, a future growth driver, is somewhat declining.
The revised Impairment Loss Guidelines allow for the postponement of management fee reductions under the review of the auditor when management improvements of the invested corporations are anticipated. This aims to support the stable operation of the Mother Fund's venture funds by preventing management fee reductions due to temporary capital erosion of the invested corporations.
Additionally, the regulations on management fee reductions due to the deterioration of financial statements will not be exceptionally applied to corporations that are within five years of establishment. This takes into account the characteristics of early-stage corporations, where it is challenging to generate revenue, and is expected to contribute to revitalizing initial investments, which have shown some signs of contraction recently.
The revision also includes a provision that if management fees are reduced due to impairment of the invested corporations and investment funds are recovered, the previously reduced management fees will be paid retroactively. The intent is to pay management fees based on the market-recognized corporate value rather than the financial statements of the corporations.
The requirements for 'significant follow-up investments' to restore management fees will also be relaxed. Previously, only equity investments were recognized, but now convertible bonds (CB) and Simple Agreements for Future Equity (SAFE) will be broadly accepted. Additionally, new monetary requirements outside of the existing equity percentage requirement (3%) will be introduced.
Minister Oh Youngju noted, 'This revision of the Impairment Loss Guidelines has been prepared to fully support venture capital in fulfilling its inherent role in venture investments during difficult times due to uncertainties both domestically and internationally.'