Korean government packages $7.9 bn aid for startups with liquidity bottleneck

FSC Chairman Kim Joo-hyun and SMEs and Startups Minister Lee Young on April 20. [Photo by Yonhap]

South Korea’s Financial Services Commission (FSC) and the Ministry of SMEs and Startups have decided on an additional policy finance worth 10 trillion won ($7.6 billion) for venture capital firms and startups that have seen investments plunge by 60 percent this year.

Under measures announced Thursday by FSC Chairman Kim Joo-hyun and SMEs and Startups Minister Lee Young, the FSC and ministry will offer a policy finance program worth 10.5 trillion won to fulfill the specific needs of startups at different stages of growth. The program is in addition to the 29.7 trillion won of assistance unveiled in January for small and mid-size companies.

The 10.5 trillion won program will include 2.2 trillion won of policy finance, 3.6 trillion won of policy funds, and 4.7 trillion won of support for research and development.

“The government is playing the role so that investments are not made due to uncertainty,” Kim said.

According to sources, venture capital investments for startups plunged 60.3 percent in the first quarter from a year ago. The funds secured for them also fell 78.6 percent during the same period.

To make startups more competitive, the authorities will also push for regulatory revisions to ensure a smoother inflow of funds for venture capital firms.

For example, the investment cap for banks in venture funds is expected to double to 1 percent of their equity capital from the current 0.5 percent. Other revisions will likely be implemented, such as the abolishment of the obligation of venture capital firms to invest in new shares in merger and acquisitions.

The government will also revise laws to regard corporate venture capital investments in offshore affiliations of local startups as local investments.

The legal scope of outside experts eligible for stock options in startups will also be expanded to include those with academic degrees and professional experience, which is aimed at enhancing technical prowess in startups. A dual-class ownership structure will be employed to help startups keep their stakes from venture funds.