Fundamental Revisions Needed in Venture Industry

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Fundamental Revisions Needed in Venture Industry

The Korea Development Institute (KDI) recently released a report on venture companies in Korea. According to the KDI report, as of last year, only 17 percent of the total 4,934 venture companies in Korea met U.S. market standards. Obviously, Korea's economic background and current state are quite different from those of the U.S. The report in fact suggested that the majority of Korea's venture industry is as fragile as a soap bubble. The industry is in a critical position, in response to which, the KDI seriously criticized governmental policies designed to support venture companies. Now is certainly the time to revise and strenghten fundamental government policies on venture businesses.

Korean venture businesses have reported rapid growth in their short histories. Korean venture companies really took off after the foreign exchange crisis. In fact, the number of venture companies that have government authorization had reached 6,000 by the end of March 2000. This is a considerable increase from last year, and 330 new companies are now established every month. Korea is becoming a leader in venture capitalism, particularly in Asia; Taiwan and Japan have only 1,200 and 4,700 venture companies respectively. In addition, skyrocketing venture company stock prices have significantly increased Korea's morale after the foreign exchange crisis.

However, the boom in venture business is not without negative side effects. There has been increasing pressure to win 'the jackpot,' rather than focus on technologies development. There have been reports of quasi-venture companies which secretly transfer government funds to foreign countries. Questionable government support policies are largely responsible for these negative aspects of venture business. The government has created various support policies without considering the consequences. Irresponsible government policies include plans to increase the number of venture companies to 40,000 by 2005. When skyrocketing stock prices were considered alongside ill-considered government policies, venture companies began to look like an easy 'jackpot.'

Reconfiguring policies and systems related to venture companies is absolutely crucial now, especially considering recent evidence of Internet and U.S. Nasdaq market instability. The first priorities must be the so-called 'numbers game' and 'profit-based government policies.' The government must create clearer boundaries. The government is responsible for creating venture company infrastructures, as well as the removal of barriers on further business expansion. The management process should comprise support activities but not interventionism and stop at monitoring the inappropriate use of money. Moreover, accurate information about Kosdaq listed companies must be readily available to investors, in order to improve the chances of making appropriate investment decisions.

Venture company businessmen also need to change their attitudes. They can no longer expect people to invest on impulse. Therefore, they must be aware of possible failure if they fail to establish technological power along with profitability.

It is as important that venture companies' improvements be as well-regulated as government intervention, in order to protect venture business sectors from disappearing. Healthy and solid venture businesses must be constantly revitalized. Our national economy will be critically damaged if the venture industry collapses after such intense investment, both in terms of money and manpower. We must strengthen the foundation of our venture industry in order to enhance our nation's competitive power.

by Kim Jung-soo

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