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Venture capital

FKI calls for further easing of new CVC rules to spur investment

Aug 19, 2020 (Gmt+09:00)

The South Korean government, which recently decided to allow holding companies of conglomerates to run corporate venture capital (CVC) units, needs to keep related red tape to the minimum to facilitate active investment in start-ups, the Federation of Korean Industries (FKI) said in a Aug. 19 statement.

The nation's top business lobby group said that the new rules may lose their effectiveness if the government sticks to proposed regulations, such as the ban on conglomerates’ external capital financing for CVCs and allowing big companies to create venture capital units only if they are wholly owned by a holding entity.

Under current rules, holding companies of large firms are prohibited from establishing CVCs due to a ban on non-financial companies owning financial units. Under the principle of separation of financial and industrial capital, the country has been prohibiting holding firms from having CVCs. Accordingly, some business groups -- such as SK, LG, Lotte, CJ and Kolon -- have created CVCs indirectly, outside their holding firms or in the form of overseas affiliates.

But the government said in late July that it would revise the Fair Trade Act by the end of this year to allow conglomerates to own venture capital units in the form of a wholly owned subsidiaries.

ON EQUAL FOOTING WITH GLOBAL RIVALS

The FKI, however, said on Wednesday the government should ease the rules further to allow local companies to better compete with their foreign rivals such as Japan’s Mitsubishi UFJ Financial Group, which is allowed to have its CVC, Mitsubishi UFJ Capital, not as a wholly owned firm but as an affiliate.

In China, CVCs are allowed to receive outside capital, including state-run funds. Legend Capital Management Co., a subsidiary of Legend Holdings Corp., manages $7.6 billion won in funds, of which only 26.6% comes from Legend Holdings’ other units, while the remainder is financed from external sources.

In the US, business-friendly rules allow GV, formerly Google Ventures, to actively invest in start-ups through $4.5 billion in funding. GV has succeeded in aiding the IPOs of 25 start-ups and arranged M&As of 125 firms since 2009, according to the FKI.

“In foreign countries, companies are allowed to create CVCs more liberally, taking into account their situations. To revitalize the venture ecosystem in Korea, we also need to deregulate further in the establishment and operations of CVCs,” said Yoo Hwan-ik, a senior FKI official.

Corporate venture capital is growing its influence in the global venture capital market, with CVCs accounting for 25% of total venture capital investments in 2019, up from 19% in 2014.

By Su-Bin Lee

isb@hankyung.com

In-Soo Nam edited this article

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