Startup A is in a lawsuit with a venture capital (VC) firm. A used the investment funds to purchase cryptocurrencies like Bitcoin for purposes other than those specified in the contract. The VC filed a civil lawsuit against A seeking restoration of funds and damages. In criminal proceedings, they also filed a complaint for embezzlement or breach of trust. Previously, the VC had signed an investment contract with A that imposed joint liability, joint guarantee liability, and penalty provisions, but it was insufficient to prevent the misappropriation of the investment funds.
After receiving investment from a VC, startup B transferred all of its existing corporate clients to its new company. Investors claimed that this led to the existing corporation's liabilities increasing rapidly and ultimately filing for bankruptcy, resulting in civil lawsuits and criminal complaints for violating non-compete obligations and trade secret duties.
According to the venture investment industry on the 13th, some startups have recently filed for bankruptcy after using investment funds for personal purposes, deepening the concerns of VCs and investors. When a corporation goes bankrupt, the corporation and its liabilities disappear together, making it difficult to recover the invested funds.
Kim Won-sang, the chief attorney at Daeryun Law Firm, noted, 'There are often cases where a corporation applies for bankruptcy with the purpose of diverting corporate assets.'
Kim explained, 'As long as it qualifies as over-indebtedness (when liabilities exceed assets), a corporation can be declared bankrupt, and corporations can misuse the fact that their liabilities will be extinguished without a separate discharge order.'
Although there were no deliberate bankruptcy filings, there have been cases where the moral hazard of individuals became a problem.
Nodalab, a big data-based B2B trade transaction platform established in 2021, is expected to undergo bankruptcy proceedings. This is because the representative fled overseas after using investment funds without following legal procedures.
A VC that previously invested in Nodalab raised issues about the company representative misappropriating those funds for personal use. The representative reportedly claimed that the funds were used for the company, not personal purposes, and has returned the funds. However, the representative is still absent, preventing the corporation from initiating bankruptcy proceedings.
In 2023, Yoo Jeong-beom, the representative of Mesh Korea, which operates Bureong, entered corporate rehabilitation proceedings due to liquidity deterioration and withdrew a total of 3 billion won without the approval of the board or the court. In July of this year, the court sentenced Yoo to four years in prison on charges of breach of trust.
The issue is that if moral hazards among startups continue, the trust of VCs and investors is likely to decline, which may depress investment sentiment.
An official from a startup said, 'Investment in startups has just begun to expand, and I am concerned that the trust of VCs may decline and investment sentiment may be undermined due to individual moral hazards.'
There is also a view that these are merely the deviations of some individuals. An insider familiar with the startup industry said, 'Since the Korea Venture Investment Corporation was established in 2005, the government's oversight and management functions have been strengthened, and private sector accelerators have emerged, providing close management. Most startup representatives are diligently focused on company growth, and I hope some cases do not reflect on the whole.'
Experts point out that individual self-regulation is more important than complementing the system.
A venture capital official emphasized, 'If representatives do not fulfill their duties of good faith and sincerity, the VC managing risks will have to tighten management. This ultimately restricts the active entrepreneurial activities of founders, so personal self-regulation is necessary.'