Bid to attract more affluent ‘angels’ to start-ups

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Bid to attract more affluent ‘angels’ to start-ups

The government has eased rules on “professional” angel investors to encourage more affluent individuals to offer financial backing to local start-ups, the Small and Medium Business Administration (SMBA) said.

Angel investors, often called angels, refers to wealthy individuals who provide capital for a start-up, in exchange for convertible debt or ownership equity.

Korea, which has tight regulations on start-ups despite its creative economy drive, launched the unique system in July last year giving “professional angel investor” status only to those who meet government-designated qualifications. The status is valid for two years.

“It’s hard to see many individuals invest in start-ups in Korea. Most of the investors are institutions,” said an official from the SMBA’s venture investment department on Sunday. “The government had to intervene to launch the professional angel system to attract more private investors.”

Professional “angels” are given bigger benefits than ordinary angels.

The government operates the so-called “angel investment matching fund,” in which when an ordinary angel invests 100 million won ($86,319) into a certain company, for instance, the government injects the same amount to double the size of investment. But when a professional injects the same amount, the government offers twice the capital. Start-ups supported by professional angels may receive an R&D fund of up to 200 million won.

According to the revised bill on fostering start-ups, which went into effect on Nov. 18, lawyers, certified public accountants, tax accountants, patent attorneys and certified public appraisers were added to the list of people eligible to become “professional” angel investors.

Before the revision, only those who fulfill at least one of the following conditions were qualified: founder of a listed company or its executive of three years or longer; venture fund investment manager of two years or longer; certified engineer; Ph.D. in engineering or commerce and industry; and anyone who has completed a paid government-offered course of six full days to foster angel investor hopefuls.

The revised rules came after criticism that the limited qualifications barred participation of many prospective angels.

Only 30 professional angels were registered as of October, 15 months after the SMBA started accepting applications.

The SMBA, which oversees start-up regulations, said the revised bill has also shortened the mandatory period angels must hold their stake in a start-up, from a year to six months.

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