Korea Startup Accelerators and Early Stage Investors Association (K-AIA) said on the 16th it formally proposed the need to create a "secondary fund dedicated to AC investment" to foster a virtuous cycle in the early-stage startup investment ecosystem.
The association attended the "Korea Federation of Small and Medium Enterprises · Democratic Party of Korea, SME legislative agenda town hall meeting" held the previous day at the Korea Federation of Small and Medium Enterprises in Yeouido, Seoul, and said, "Although a significant portion of exits in the early-startup investment structure depends on secondary transactions of existing shares, secondary funds within the institutional framework are currently concentrated in the VC investment domain, effectively excluding AC investments."
The association went on to note, "Because ACs focus on investing in corporations in the very early stage less than three years after founding, exits take a long time and investment risk is high, yet the absence of a dedicated secondary market creates a structural limitation that hinders smooth capital recovery." It added, "ACs rely on unofficial secondary transactions through individual human networks, which has led to a vicious cycle of delayed capital recovery, reduced capacity for reinvestment, and contraction in early-stage investment."
As a solution, the association proposed creating a secondary fund dedicated to AC investment within the parent fund. By purchasing, within the institutional framework, existing shares of early startups held by ACs through this fund, ACs would be able to exit earlier, and the recovered capital would flow back into early-startup investments to build a virtuous cycle. It also recommended considering, alongside this, a plan to reflect the purchase of existing shares in AC investment deals at or above a certain ratio when operating existing parent-fund VC secondary funds.
K-AIA Chair Jeon Hwa-seong said, "ACs are the actors who invest while sharing risk with founders in the segment with the highest probability of failure," adding, "A secondary fund dedicated to AC investment is not just an exit tool; it is the minimum infrastructure that makes the early-stage investment market sustainable." He continued, "Only when early-stage investment thrives will the entire startup ecosystem become healthy," emphasizing, "The National Assembly and the government should actively pursue institutional improvements that reflect the structural characteristics of the early-stage investment ecosystem."
The town hall meeting was organized for follow-up discussions after a meeting in Sep. between Democratic Party of Korea leader Jung Chung-rae and small-business owners, and was attended by about 80 people, including the party leadership and officials from small and medium-sized businesses, venture firms, and startups.