Venture Capital at a Crossroads

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Venture Capital at a Crossroads

Yesterday President Kim Dae-jung complained about "some venture capitalists'' wrong behavior" and urged them to clean up their act in the aftermath of the scandal involving Chung Hyun-joon, the head of the failed Korea Digital Line. Even without the president''s comment, the immoral actions of some venture capitalists, coming to light one after another, are enough to disappoint the general public. According to an investigation by tax authorities, some venture capitalists have used government subsidies for private loan business, while others have taken the money and fled to foreign countries. Conspiracies between venture capitalists and fund managers have been exposed, and the rumor that venture firms have colluded with politicians and bureaucrats has been confirmed to some extent.

Many Korean venture firms have turned into a mess in just a few years since they first came into being. This is the result of a combination of factors: the government''s misguided policies, warped schemes of wild-eyed venture capitalists, and investors'' dream of making it big overnight. The government''s role should have been that of preparing systems for natural encounters between venture capital and technology, establishing infrastructure and supervising to ensure a fair competition. However, the government was intent on outward show, vowing to cultivate 40,000 venture firms by 2005. As if giving "the seal of approval" to venture firms and pouring in trillions of won were not enough, the government created a bizarre scheme of setting up funds for mergers and acquisitions. Nevertheless, the venture industry should not be left to collapse. The healthy coming together of creative technology and capital should go on, and its role as a key industry in the future of the Korean economy should grow. The first task is for venture capitalists to undergo a change of heart. Investors in turn should change their mindset. Their indiscriminate investments have made the recovery of funds troublesome. What is most important is for the government to reexamine its policy and to quickly reestablish a proper direction for the Korean venture industry in the long term.

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