A dispute over an investment contract at the creator intellectual property (IP) transaction platform OGQ has emerged as a new flashpoint in the startup sector. A court recognized founder and CEO Shin Cheol-ho's direct repayment obligation as a contractual "interested party" in an investment premised not on a typical venture deal but on a specific merger and acquisition (M&A) closing.
Some in the venture investment industry view the ruling as a case that reaffirms the principles of investment contracts. But among startup circles led by founders, voices are calling for system improvements, saying business risks of the company are being shifted to founders personally.
OGQ is a startup founded in 2010 by Shin Cheol-ho. It has raised more than 100 billion won in total and has grown into a platform with 17 million users, 1.3 million creators, and about 59 million IPs. Last year's revenue was 15.2 billion won, with an operating loss of 5.8 billion won.
The controversy surfaced after Shin said on his Facebook page on the 17th that he is bearing about 12 billion won in personal debt. Shin said, "The interest is growing by about 100 million won every month," and explained, "It is the investment of 9 billion won that was invested in the corporation OGQ and kept as is in the company account, plus interest." He added, "The investors defined this as my personal debt as the representative, and the court reached the same conclusion."
◇ "A contractual safety device is needed in case an M&A falls through"
The case dates to 2021. OGQ sought to acquire Getty Images Korea, the nation's largest image platform, and received about 9 billion won from a new technology investment partnership jointly managed by Brave New Investment and Vision Creator as general partners (GP). This was a purpose-specific investment executed on the premise of a particular M&A closing, not a typical growth-capital investment.
The investment contract included a clause that if the acquisition did not close, the "investment target company or interested party" would repay the investment. After the acquisition talks collapsed, the investment partnership filed a lawsuit for the return of the investment against Shin personally, who had participated as a contractual interested party.
The court found that, under the contract language, both OGQ and Shin were obligated to repay the investment. When the Supreme Court affirmed the lower court's decision in April, Shin became liable for the principal of about 9 billion won plus 12% annual default interest.
The venture investment industry views the ruling as a case that reconfirms the principle of contracts. Venture investment is not a financial product that guarantees principal, but when large sums are invested premised on a specific M&A, at least a minimal recovery mechanism is needed to prepare for the possibility the transaction may fall through. In particular, this case concerns not losses from business failure but the nonperformance of contractual conditions that underpinned the investment, making it reasonable to recognize the liability set out in the contract.
A head of a venture capital (VC) firm said, "Venture investment needs minimal safeguards to protect investors if the conditions set out in the contract are not met," adding, "The court recognized the interested party's direct repayment obligation according to the contract language."
◇ "The interested party clause is effectively a joint guarantee"
On the other hand, startups centered on founders worry the ruling could impose excessive liability on founders personally. Although recent revisions to the Venture Investment Act strengthened limits on joint guarantees in the startup and venture space, they say the interested party clause in investment contracts is being used as a de facto workaround to joint guarantees.
Shin also argued that this case stemmed from such a contract structure. He said, "Nowhere in the contract was there an expression of a representative's personal joint guarantee," but added, "Under the pretext of being an interested party, I was included as a contracting party in my personal capacity, and this clause became the starting point of everything." He explained, "The investment remained as is in the company account, and we considered a company-level return plan, but we could not execute it due to procedures under the Commercial Act and opposition from some shareholders."
However, in the legal community, the prevailing view is that it is difficult to challenge the interested party framework itself. Having the founder join as a party to the investment contract to regulate matters such as restrictions on disposal of founder shares, exercise of voting rights, and cooperation in M&A is a common structure not only in Korea but also in overseas venture investment, including the United States. The issue is what obligations can be imposed on interested parties. In particular, whether to make them bear pecuniary obligations such as repayment of the investment should be examined separately.
Ahn Hee-cheol, managing attorney at DLG, said, "It must be clearly confirmed in the contract whether the interested party is included as the obligor for each clause and under what circumstances a personal payment obligation arises," adding, "This shows the need to begin full-fledged discussions on how far to recognize interested party clauses and how to allocate business risks and contractual liability in venture investment."