As the mandatory investment deadline for venture investment corporations and accelerators (ACs) was eased from three years to five, people in the field say it has given them breathing room.
With the addition of "corporations with five years of history or less and no prior investment record" as new targets for AC individual investment associations, the range of choices has widened compared with before. Even corporations that received funding in the early startup stage, years 1 to 3, can raise money again if they had no additional funding in years 4 to 5.
According to the venture investment industry on the 2nd, the National Assembly's Trade. Industry Energy. SMEs. and Startups Committee passed an amendment to the Act on the Promotion of Venture Investment that extends the mandatory investment deadline after registration for venture investment corporations and accelerators (ACs) from three years to five. Along with banning joint liability for founders, this is a key element of the amendment.
Venture investment corporations and ACs faced the burden of meeting mandatory investment ratios within three years from the time of establishment.
For example, within three years of registration, a venture investment corporation had to invest a certain percentage of its total assets under management in early startup corporations and venture corporations. Deep-tech and early research corporations in fields such as chemistry or robotics, which require long technology verification periods, were pushed down the priority list due to high technological uncertainty. If they failed to meet the mandatory ratio within the deadline, they also faced administrative action such as cancellation of registration.
A person at a venture investment corporation said, "For deep-tech or early research corporations, it takes 1 to 2 years just for technology development and verification, so it was hard to watch long enough and judge when we had to meet the investment ratio within three years," and added, "There were cases where we had to invest to meet the deadline rather than wait for research data to accumulate, making it hard to properly assess potential."
Under the amendment, major investment players such as venture investment corporations and ACs need only achieve their investment goals over five years. With the mandatory period extended, investment institutions can take more time with transaction sourcing and due diligence. There is now room for smoother funding to long-term projects such as deep-tech and biotech that require time for technology validation and product development.
A new rule also relaxes the required investment target corporate history for individual investment associations run by ACs from the previous three years to five years or less. Observers say an investment structure that had centered on early-stage corporations could become somewhat more flexible.
An official at the Korea Startup Accelerators and Early Stage Investors Association (K-AIA) noted, "Because we invested in corporations less than three years old, ticket sizes were small and we couldn't significantly scale up association size," and added, "With the required investment target corporate history expanded to five years, the scope of portfolio management has broadened significantly."
Industry watchers say a path has opened to finance corporations in years 4 to 5, where closure rates are high. Jeon Hwaseong, president of the Korea Startup Accelerators and Early Stage Investors Association (K-AIA), said, "It can be seen that difficult startups in years 4 to 5 have found a way."
He added, "Many struggled when they tried to raise investment after experimenting for three years," and said, "The regulation has been greatly eased."
An official at the Ministry of SMEs and Startups (MSS) explained, "We left the existing conditions for early startup corporation investment targets as is and added a separate provision," and said, "If a corporation in years 4 to 5 of founding has no record of investment during that period, it will be newly included as a mandatory investment target for AC individual investment associations."