Venture capital firms are a different category

Accelerators have a similar role to venture capital firms since they profit from investments in start-ups’ shares. However they are registered as corporations and cannot create investment funds. Furthermore, once start-ups are listed on the stock market, they sell off but do not receive tax benefits that a venture capital firm would have received.

If an accelerator changes its status to a venture capital firm, it can enjoy tax benefits. But there are different requirements. To register as a venture capital firm, an accelerator needs over 5 billion won ($4 million) in capital and more than two financial experts, which accelerators rarely have.

Moreover, according to the Support for Small and Medium Enterprise (SME) Establishment Act, the accommodation, finance and insurance sectors are not qualified to receive funding from venture capital firms. If an accelerator registers as a venture capital firm, investments in room sharing service or easy payment service start-ups would no longer be possible.

For these reasons, some in the industry complain that the law is behind current business trends and limits the growth of start-ups. A revised version of the Support for SME Establishment Act, also called the accelerator law, proposed by lawmaker Lee Jeong-hyun is pending in the National Assembly.

The essence of the revised law is to permit funding for fintech start-ups, which are service providers utilizing information and communications technology. The law also introduces grounds and registration qualifications for accelerators so that they can register not as corporations but as accelerators that provide venture capital and training for start-ups.

BY JEON YOUNG-SEON [kim.jeehee@joongang.co.kr]