South Korea is set to witness the beginning of private-centered venture capital master funds
On October 10, the Ministry of SMEs and Startups(hereinafter referred to as MSS) announced that the State Council approved the amendments to the Enforcement Decree of the Venture Investment Promotion Act, which stipulates the registration requirements, investment ratio, and expansion of the autonomy of private VC master funds.
As a result, private VC master funds will be institutionalized for the first time in South Korea and will take effect on October 19.
The advantage of private VC master funds is maximum stability and profitability through indirect and distributed investment in private venture capital funds. Private venture capital funds in Korea haven’t been as prevalent as those in advanced global venture capital countries like the U.S. However, the institutionalization of master funds has created a new opportunity to boost private venture capital funds in Korea.
The private VC master funds system mainly consists of the following contents.
Venture capital firms and new technology financing companies with experience managing large-scale funds and recruiting investors, in addition to asset managers that meet certain requirements, can independently manage private VC master funds. Also, asset management and securities firms can jointly manage the funds with venture capital firms.
In order to boost investment in venture capital and startups, over 60% of the total investment sum should be allocated to the venture investment association. Additionally, to avoid the creation of multiple small funds, the fund size must be at least KRW 100 billion.
The limit on the percentage of publicly traded stocks, which is currently set at 20% of the investment in venture investment associations, has been increased to 40%. Greater autonomy in fund management will be guaranteed by allowing investment in private equity funds and new technology business investment associations, enabling diversified, profit-driven investments to be made.
Minister LEE Young stated, “The private VC master funds system will strengthen the role of the private sector in venture investment.” She added, “We hope private VC master funds will be more formed and establish themselves as major players in expanding private capital inflows alongside the government’s fund of funds.”