The Ministry of SMEs and Startups and Korea Venture Investment Corporation said they will hold the first forum on improving venture investment contract culture on the 25th to correct unfair practices that can arise in venture investment contracting and to build a sound investment ecosystem.
The forum was organized to improve unfair practices that appear in venture investment contracting and to address the disadvantage startups with limited negotiating experience face against investors. The plan is to review and fix unreasonable clauses in investment contracts, establish a balanced relationship of rights and obligations between startups and investors, and create a fair investment environment.
To establish an investment culture where investors and startups grow together, startups, venture capital (VC), accelerators (AC), angel investors, and legal and accounting experts will discuss policy. Based on this, they will identify institutional reform tasks focused on contract issues that arise in actual investment settings and prepare practical policy alternatives.
Disputes between VCs and startups and improvements to investment contracts will also be key agenda items. The plan is to discuss unreasonable clauses in investment contracts, dispute cases such as consent rights, and ways to improve the standard investment contract and its guide. They will also examine issues recently raised regarding the use of redeemable convertible preferred stock (RCPS). RCPS is an investment method that grants both the right to recoup the investment (redemption) and to convert to common shares, and, depending on contract terms, it can burden startups.
Unfair contract cases identified at the forum will be tied to future policy to establish fair contractual standards, and on-the-ground feedback will also be reflected. The standard investment contract and its guide will be revised and distributed within the year.
Starting with this first forum, the forum on improving venture investment contract culture will be held quarterly throughout the year. Based on the discussions, the government will push to improve the investment contract system and spread fair investment practices. In addition, to resolve legal issues during investment contracting, the government is providing year-round legal counseling at 17 Startup One-Stop Support Centers nationwide.
Minister Han Seong-sook said, "For the government's 'startup for all' policy to translate into results, it is important to establish a fair investment environment and a trust-based venture investment contract culture in the post-launch stage."
She added, "With this forum as a starting point, we will work to spread fair investment practices that allow investors and startups to grow together and to build a venture investment ecosystem where entrepreneurs can take on challenges with confidence, so that 'startup for all' can lead to sustainable growth."