More tinkering by government to foster startups

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More tinkering by government to foster startups

The government will ease regulations on venture capital funds invested in high-potential start-ups and small- and medium-sized enterprises (SMEs), including allowing private investors to establish funds on their own without a joint investment by the government.

The Financial Services Commission (FSC) announced a string of measures on Sunday to encourage investment in startups and SMEs by private investors.

Current regulations approve the establishment of a so-called Korea Venture Fund, funds invested in startups or SMEs, only through a joint investment with the government.

Despite tax benefits from the government, the joint investment with the government resulted in lots of regulations to comply with, deterring investors.

The new rules will remove the requirement for a joint investment with the government and allow private investors to raise such a fund on their own.

The FSC said the new rule will be applied to funds invested in merger and acquisitions (M&A) of startups or SMEs by larger companies as well.

While the government has continuously relaxed regulations on venture capital, the number of newly-established venture capital funds for SMEs and startups rose to 82 in 2014, from 41 in 2012.

Still, 40.3 percent of the venture capital funds were invested by the government, not by private investors, according to statistics by the FSC.

In addition, only 2.1 percent of the venture capital funds established in 2014 earned money through M&As of the startups with other companies, the FSC said, which means that Korea’s M&A market is still tiny.

Another goal of the FSC is to nurture the so-called secondary market, in which investors can trade their stock before M&As and withdraw investment when they want to.

The government will pinpoint one or two local asset management companies and ask them to be brokers in the secondary market, the FSC said.

The government tried to create a secondary market since 2014, but it has not taken off, unlike in other developed countries.

Along with measures to build the secondary market, some tax benefits will be offered to private equity funds invested in startups or SMEs in Korea, the FSC said.

The measures came as part of efforts by FSC Chairman Yim Jong-yong to revitalize and reform Korea’s current financial market.

The ultimate purpose of the measures was to create “an ecosystem” for startups, the FSC said.

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