S. Korea revises venture investment contract standards for first time in 3 years

South Korea is overhauling key provisions in venture investment contracts — including pre-approval rights, redemption rights, refixing clauses and mandatory initial public offering requirements — that have long been a source of disputes between startups and venture capital firms. The revisions aim to offset the limited bargaining power of early-stage companies while striking a better balance between protecting investor rights and preserving founders' management autonomy.

The Ministry of SMEs and Startups and Korea Venture Investment Corp. jointly unveiled the revised "Venture Investment Standard Contract" on Tuesday at a declaration ceremony held at Startup Venture Campus Seoul.

The revision is the first since 2023. The ministry and Korea Venture Investment Corp. launched the "Venture Investment Contract Culture Development Forum" in December last year, bringing together startups, venture capital firms, accelerators, related organizations and legal experts to discuss aligning the contract framework with global standards.

The core of the revision is to simplify complex contract structures and eliminate clauses that could impose excessive obligations or liability on founders. The existing 32 integrated contract types have been reorganized into two separate agreements — a stock purchase agreement and a shareholders' agreement — and the number of contract types has been streamlined to five.

Investor pre-approval rights have also been restructured. Under the previous framework, requiring unanimous consent from all investors could delay follow-on funding and major business decisions. The revised standard contract introduces a collective consent mechanism organized by investment round, allowing each round's stakeholders to reflect their own interests.

The prevalent use of redeemable convertible preferred shares, known as RCPS, is also being addressed. RCPS gives investors the right to redeem their investment under certain conditions or convert it into common shares. The ministry said it is steering the market toward greater use of convertible preferred shares, or CPS, in line with global investment norms.

The refixing mechanism — which can sharply dilute a founder's stake when conversion rights are exercised — has also been revised. Instead of the existing lowest-price method, the revised contract proposes a weighted-average method as the default, designed to better balance the interests of existing shareholders and investors. Refixing allows investors to readjust the conversion price of preferred shares into common stock when a company's valuation falls after the initial investment.

The IPO clause has been recast from a "results obligation" — requiring a company to actually achieve a listing — to a "best-efforts obligation," under which founders commit to making sincere efforts toward a listing. A provision limiting joint liability for third parties has also been incorporated to prevent excessive responsibility from being placed on founders or related parties. The restriction on imposing third-party joint liability takes effect Dec. 30 under an amendment to the Venture Investment Act.

Korea Venture Investment Corp. will produce and distribute a "Venture Investment Standard Contract and Commentary" to help startups and investors better understand the revised terms. The guidebook will include explanations of individual contract clauses and notes on their relative importance.

The standard contract and guidebook are available online starting Tuesday through the Venture Investment Integrated Portal and the websites of Korea Venture Investment Corp., the Korea Venture Capital Association, the Korea Venture Business Association and the Korea Startup Forum. Printed copies are set to be distributed through online and offline bookstores in July.

The ministry will also promote the revised contract through newsletters, YouTube and social media to encourage adoption in the field. It plans to train counselors at the "Startup One-Stop Support Center" on the standard contract and help startups connect with venture investment specialists for consultations.

The Korea Venture Capital Association will incorporate the revised contract content into training programs for investment professionals and compliance officers at venture capital firms. Korea Venture Investment Corp. also plans to brief investors on the changes at regional "risk management joint training" sessions beginning in July.

A venture investment contract culture development forum held after the declaration ceremony discussed ways to promote wider adoption of the standard contract and guidebook, as well as measures to encourage the use of early-stage investment instruments such as Simple Agreements for Future Equity and convertible notes. The ministry said it will continue operating the forum in the third quarter to gather industry input and identify areas for further regulatory improvement.

"When a fair and sound venture investment contract culture takes root, founders can pursue their ventures with confidence, and investors can protect their legitimate rights while continuing to invest," First Vice Minister Noh Yong-seok said. "We will work to ensure the revised venture investment standard contract and guidebook spread and take hold in the field as quickly as possible."