Interpretations are diverging between the government and the industry over "company building," an investment method in which an accelerator (AC, startup planner) establishes a subsidiary.
According to the industry on the 12th, four ACs — Y&ARCHER, InfoBank, Series Ventures, and SUNBO Angel Partners — received warnings and corrective orders last month from the Ministry of SMEs and Startups for violating the ban on investments for the purpose of exercising management control.
The enforcement decree of the Venture Investment Promotion Act restricts ACs from holding an excessive amount of equity in a specific corporations so they cannot directly exercise control. However, as the "company building" model — in which ACs directly establish early startups or participate in operations in a form close to co-founding — spread in the global startup ecosystem, the government revised the enforcement decree in July last year to partially ease related regulations.
Before the revision, investments for the purpose of exercising management control were allowed only for early startups that an AC directly selected or held, but with the revised enforcement decree, company building in the form of direct establishment was also included within the permissible scope. Existing investment period requirements — such as holding equity for at least six months and selling all equity within seven years after management control is established — were maintained.
The industry argues that the Ministry of SMEs and Startups' dispositions against the four ACs, including Y&ARCHER, contradict policy direction. Even if subsidiaries were established or investments were made for the purpose of management control before the enforcement decree was revised, company building is a model the government has eased regulations on and encouraged, and it is now permitted under the revised enforcement decree.
The Ministry of SMEs and Startups (MSS) says the latest action did not single out the act of company building itself as the problem. Although the reasons for violation differ among the four ACs, the ministry said it considered together whether they violated the ban on investments for the purpose of management control and whether they met the exceptions.
An official at the Ministry of SMEs and Startups (MSS) said, "Issues related to company building do not end with the enforcement decree revision; this is the beginning," and added, "Just because part of the enforcement decree was revised does not mean it is fully permitted without exception."