Large conglomerates' CVC units get 9-month grace period to divest stakes in newly affiliated firms

Corporate venture capital units affiliated with large conglomerate groups will receive a nine-month grace period to divest their stakes when a portfolio company is subsequently brought into the same conglomerate through a merger, acquisition or other structural change. The measure is expected to ease longstanding concerns that conglomerates have been reluctant to invest in venture companies because of difficulties recouping their capital.

The Ministry of SMEs and Startups said Tuesday that amendments to the enforcement decrees of the Act on Promotion of Venture Investment and the Special Act on Fostering Venture Businesses passed the Cabinet meeting as follow-up measures to the "Comprehensive Plan to Leap into the Top Four Venture Nations" announced last year. The amendments take effect July 1, with provisions delegating work to regional SME offices applying from Jan. 1, 2027.

The core of the amendments is to expand the operational autonomy of venture funds. Under the new rules, when a CVC affiliated with a large conglomerate group and one of its portfolio companies end up belonging to the same conglomerate after the initial investment — due to an acquisition by another affiliate or a change in ownership structure — the CVC will have nine months to dispose of its stake rather than being required to do so immediately. Industry sources had reportedly sought a one-year grace period, but the final figure was set at nine months as a compromise.

The eligible investment targets for individual investment partnerships will also be broadened. Accelerators managing such partnerships will now be required to invest in startups up to five years old that have not yet secured outside funding, expanding the previous threshold of companies up to three years old. The change is intended to open financing opportunities to companies that have moved past the earliest stage of founding but have yet to attract external investment.

The ceiling on individual investment partnerships' exposure to listed companies will rise from 10 percent to 20 percent, bringing them in line with venture investment partnerships and giving fund managers more flexibility to build portfolios based on market conditions. A separate rule requiring each individual venture investment partnership to allocate at least 20 percent of its assets to startups and venture companies will also be abolished. Going forward, only a 40 percent threshold applied to a fund manager's total assets under management will remain.

In addition, the scope of fintech-based financial services that venture investment companies may exceptionally acquire will shift from a classification based on "business sector" to one based on "license or registration." The ministry said the change is designed to reduce confusion over what investments are permissible and to stimulate investment in the fintech sector.

New procedures and legal grounds will also be established to allow limited partners who wish to exit when a Korea Fund of Funds' term is extended to receive distributions of their principal and returns. As the number of venture investment companies and partnerships has grown and demand for inspections has increased, dissolution, liquidation and regular inspection duties will transfer to regional SME offices starting in 2027. Statistical work on accelerators will move from the Korea Startup Promotion Agency to the Korea Accelerator Association.

A "Venture Business Week" will also be newly designated. Under the amended enforcement decree of the Special Act on Fostering Venture Businesses, the first week of December each year will be designated as Venture Business Week. The government plans to use the period to recognize outstanding venture companies and promote their achievements.

"This amendment to the enforcement decrees is the result of improving regulations so that the venture investment market can operate more autonomously and flexibly," Minister of SMEs and Startups Han Sung-sook said. "We will work to ensure that the reformed system takes root in the investment field so that private capital flows actively into venture companies and startups."