S.Korea to spur startup investments with eased rules

South Korea will deploy at least 10% of a state-backed fund of funds (FoF) to venture capital investment dedicated to small startups every year, the government said on Thursday.

Run by state-owned Korea Venture Investment Corp. (KVIC), the FoF manages 8.2 trillion won ($6.1 billion) in assets as of the end of 2022. It was created in 2005 for a 30-year operation to finance VC firms investing in various sectors including tech, culture, healthcare, agriculture, environment and transportation.

According to the roadmap to boost VC investments, the Ministry of SMEs and Startups will ease application rules for Rookie League, the investment program for small startups.

The ministry will accept applications from VC firms with track records of five years and less, an extension from the current regulation of three years or less. VCs managing up to 100 billion won in assets will be eligible to apply, compared with the current restriction of up to 50 billion won.

The government will maintain at least 10% of the FoF's deployment to Rookie League per year, while the proportion has fluctuated between 5% and 15% in recent years.

In the selection of VCs, the ministry will give extra points to the firms that make investments this year via their funds created between 2021 and 2022. It will also raise the rates of capital deployment and management fees to such VCs.

The government will also form a committee for the FoF's investment strategy. Tapping experts from the private sector as members, the committee will suggest priority investment areas and asset allocation plans.

In addition, Korea will set up concrete standards for sanctions imposed on VCs that violate the country’s Venture Investment Promotion Act. It will recommend that VCs should sign a non-disclosure agreement (NDA) with invested startups to keep the ventures’ information confidential.

The Ministry of SMEs will proactively support the private sector’s venture investments, which is the basis of Korea’s economic growth, said Minister Lee Young.

Write to Joo-Wan Kim and Jong-Woo Kim at kjwan@hankyung.com

Jihyun Kim edited this article.