Venture capital firms in South Korea will be barred from demanding early recovery of their investments from venture companies and startups without justifiable grounds. Excessive use of refixing clauses, which adjust the conversion price of shares, over failed initial public offerings will also be restricted.
The Ministry of SMEs and Startups said on the 22nd that a revision to the Act on Special Measures for the Promotion of Venture Investment cleared a Cabinet meeting, aimed at fostering a fairer venture investment culture.
The revision centers on establishing a legal basis for restricting unfair investment contracts by venture investment funds. Targets include recovering investments early on grounds such as changes in management performance indicators without justifiable reasons, or demanding repayment without a set grace period. Refixing clauses that excessively lower the share price of a portfolio company because of a failed IPO will also be limited.
The revision also provides a legal basis for denying the effect of unfair contract terms — limited to those specific terms — and for imposing administrative sanctions. The measure is intended to strengthen the effectiveness of rules protecting companies that receive investment.
In addition, major shareholders and others at venture capital firms will be prohibited from offering or receiving money or entertainment for the purpose of exerting undue influence over the firm. The provision seeks to improve the independence and transparency of investment decisions and management at venture capital firms.
The revision is set to be promulgated on the 29th and take effect on March 30 next year. The ministry plans to overhaul subordinate regulations, including specific standards for the new rules, before the law takes effect.
“This revision will serve as an occasion to further strengthen fairness in venture investment decisions and investment contracts,” said Noh Yong-seok, First Vice Minister of SMEs and Startups. “To build greater trust in the venture investment market, we will continue to communicate with the industry and provide the support and institutional improvements needed.”