Korea to allow conglomerates to own startup VCs
South Korea is reportedly working on relaxing financial regulations to allow conglomerates to own venture capital firms for boosting the startup ecosystem, according to news reports on June 22.
The government is also preparing measures to prevent side effects that could stem from deep-pocketed businesses owning such investment firms.
A working group that will be formed by different ministries and government agencies, including the Ministry of Economy and Finance, Fair Trade Commission and the Ministry of SMEs and Startups, will soon finalize rules linked to the so-called corporate venture capital, or CVC.
Kim Byung-wook (third from left), a lawmaker from the ruling http://cms.heraldm.com:8080/WebStudio/Application/application/extracontentmanager_2008/extracontentMiniCreator.jsp?defaultTitle=#Democratic Party of Korea, delivers a speech at a meeting at the National Assembly to discuss corporate venture capitals and the local startup market. (Kim Young-won/The Korea Herald)
The government’s official announcement on the new CVC rules is scheduled to be made in July. It has previously hinted that it would relax regulations that ban holding companies of conglomerates from having wholly owned VC units under their wings. The regulations are aimed at preventing nonfinancial conglomerates from wielding excessive influence in the financial sector. They are also intended to keep financial groups from ending up serving as private vaults for conglomerates and their owner families.
“There are still concerns that CVCs could be used for financially benefiting owner families of conglomerates, so the government is working on measures regarding the matter,” an official from the Finance Ministry was quoted as saying by Yonhap News Agency.
One of the measures is putting a restriction on fundraising from outside investors while allowing the CVC to receive capital only from its parent company.
The FTC and the Ministry of SMEs and Startups have reportedly agreed to ban outside fundraising.
“The FTC considers that CVCs should make strategic financial investments with funds that they have received entirely from their parent companies,” an FTC official said.
Some global companies, including Google and Intel, run wholly owned venture investment arms.
Banning owner families from having a stake in CVCs and restricting VCs from investing in companies linked to owner families are also some of the proposals under discussion.
After fine-tuning details among the ministries and agencies, the government will likely finalize the rules next month.
By Kim Young-won (firstname.lastname@example.org)