May 02, 2024
Economy
Korea introduces easier, simpler investments for startups
[THE INVESTOR] South Korea on April 5 announced measures to attract more investments into startups by removing stumbling blocks and fast-tracking processes.
During an economic meeting presided over by Deputy Prime Minister for Economy Yoo Il-ho, the government endorsed a set of eased regulations on startup investment and new investment instruments, which Seoul expects to attract not only domestic but also foreign investors.
According to the plan drawn up by the Ministry of Science, ICT and Future Planning, convertible notes and simple agreements for future equity, known as SAFE, will be allowed as new investment methods for startups by revising relevant laws.
Ways of investing in startups were previously restricted to new equities, bonds with warrant, convertible bonds and exchangeable bonds.
Convertible notes are common in Silicon Valley as the notes are simpler and easier to deal with than convertible bonds. A primary advantage of issuing convertible notes is that it does not force the issuer and investor to determine the value of a company in the early stages when there is not much to base a valuation on. The investor receives equity in the company later when it has some achievement that can be valued.
SAFE is a new instrument introduced by Y Combinator, a US startup accelerator, in 2013. It is a security granting an investor the right to acquire a stake in a company in the future. Unlike traditional securities, it has no maturity or interest.
The current ban on venture capital from investing in financial, insurance and real estate-related startups will be lifted as part of the efforts to expand investment into new industries related to fintech -- financial technology -- and online to offline businesses.
The government also decided to create a 300 billion-won ($267 million) fund with foreign venture capitalists, providing them with a package of legal, foreign exchange, taxation and visa services to simplify procedures for investing in Korean startups.
“The investment ecosystem needs to be globalized and sophisticated to bolster startups’ growth beyond the country,” said Koh Kyung-mo, director of creative economy policies. “To materialize from the recent startup boom here, related government agencies will do their best to attract global capitalists and investors to Korea.”
The current 40 percent cap on local venture capital firms’ overseas investments will also be relaxed or removed after further discussion, according to the ministry.
Another 20 billion-won fund will be newly created to support Korean startups that hire foreign talents.
An existing rule on the employment of foreign employees, which limits the proportion of foreign workers to less than 20 percent of the total number of Korean workers, will be revised, too, allowing small startups to tap into the global workforce.
To widen biotechnology startups’ access to initial funds supported by the government, it extended the upper cap on the age of startups from three years to seven years, considering that biotech firms need a longer time to develop their business than other industries.
To promote investors’ participation in crowdfunding, the ministry lowered the minimum amount of an applicable angel matching fund for a particular startup from 10 million won to 1 million won.
By Song Su-hyun/The Korea Herald (song@heraldcorp.com)
During an economic meeting presided over by Deputy Prime Minister for Economy Yoo Il-ho, the government endorsed a set of eased regulations on startup investment and new investment instruments, which Seoul expects to attract not only domestic but also foreign investors.
According to the plan drawn up by the Ministry of Science, ICT and Future Planning, convertible notes and simple agreements for future equity, known as SAFE, will be allowed as new investment methods for startups by revising relevant laws.
Ways of investing in startups were previously restricted to new equities, bonds with warrant, convertible bonds and exchangeable bonds.
Convertible notes are common in Silicon Valley as the notes are simpler and easier to deal with than convertible bonds. A primary advantage of issuing convertible notes is that it does not force the issuer and investor to determine the value of a company in the early stages when there is not much to base a valuation on. The investor receives equity in the company later when it has some achievement that can be valued.
SAFE is a new instrument introduced by Y Combinator, a US startup accelerator, in 2013. It is a security granting an investor the right to acquire a stake in a company in the future. Unlike traditional securities, it has no maturity or interest.
The current ban on venture capital from investing in financial, insurance and real estate-related startups will be lifted as part of the efforts to expand investment into new industries related to fintech -- financial technology -- and online to offline businesses.
The government also decided to create a 300 billion-won ($267 million) fund with foreign venture capitalists, providing them with a package of legal, foreign exchange, taxation and visa services to simplify procedures for investing in Korean startups.
“The investment ecosystem needs to be globalized and sophisticated to bolster startups’ growth beyond the country,” said Koh Kyung-mo, director of creative economy policies. “To materialize from the recent startup boom here, related government agencies will do their best to attract global capitalists and investors to Korea.”
The current 40 percent cap on local venture capital firms’ overseas investments will also be relaxed or removed after further discussion, according to the ministry.
Another 20 billion-won fund will be newly created to support Korean startups that hire foreign talents.
An existing rule on the employment of foreign employees, which limits the proportion of foreign workers to less than 20 percent of the total number of Korean workers, will be revised, too, allowing small startups to tap into the global workforce.
To widen biotechnology startups’ access to initial funds supported by the government, it extended the upper cap on the age of startups from three years to seven years, considering that biotech firms need a longer time to develop their business than other industries.
To promote investors’ participation in crowdfunding, the ministry lowered the minimum amount of an applicable angel matching fund for a particular startup from 10 million won to 1 million won.
By Song Su-hyun/The Korea Herald (song@heraldcorp.com)
