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| Special Act on the Promotion of Venture Businesses | |
|---|---|
| Name | Special Act on the Promotion of Venture Businesses |
| Enacted by | National Assembly (South Korea) |
| Date enacted | 1997 |
| Status | Current |
Special Act on the Promotion of Venture Businesses is a statutory framework enacted to accelerate the formation, financing, and commercialization of venture capital-backed enterprises within the Republic of Korea. The Act established institutional incentives linking public policy instruments such as Small and Medium Business Administration, Korea Development Bank, and Korea Venture Investment Corp. with private actors including KOSDAQ, Seoul National University, and technology transfer offices at KAIST to stimulate startup ecosystems. It shaped interactions among financial intermediaries like Goldman Sachs, domestic conglomerates such as Samsung, and global investors exemplified by SoftBank.
The Act emerged after the 1997 Asian financial crisis and amid policy debates involving the Ministry of Finance and Economy (South Korea), Kim Dae-jung administration reformers, and advisers from institutions like the International Monetary Fund. Policymakers compared models from the United States—including institutional frameworks around Small Business Administration (United States), Silicon Valley, and Stanford University—and from Japan, where Tsukuba Science City and Mitsubishi UFJ Financial Group-linked initiatives informed debates. The legislative intent was to replicate elements seen in NASDAQ-era growth, drawing on precedents such as the Small Business Investment Company programs and the Enterprise Investment Scheme in the United Kingdom.
The Act defines eligible entities by reference to organizational forms recognized under Commercial Act (Korea), including joint-stock companies with technology-oriented cores spun out from institutions like POSTECH and Yonsei University. It differentiates "venture businesses" from traditional enterprises by criteria comparable to those used by European Investment Fund programs: R&D intensity, patent holdings as recorded with the Korean Intellectual Property Office, and investment from registered venture capital firms such as MBK Partners and SoftBank Ventures Asia. The scope covers financial instruments similar to those regulated by Financial Services Commission (South Korea) and addresses listing pathways via KOSDAQ and related markets.
Key incentives include tax credits analogous to Research and Development Tax Credit (United States), capital gains deferrals patterned after mechanisms in Israel's Yozma program, and preferential procurement measures inspired by Small and Medium Enterprise Agency (Japan). The Act authorized creation of public funds administered by entities such as Korea Technology Finance Corporation and provision of guarantee schemes in coordination with Korea Credit Guarantee Fund. It established simplified listing conditions for KOSDAQ comparable to NASDAQ rules, supported employee stock option regimes like those used at Google and Amazon (company), and enabled co-investment arrangements with sovereign assets similar to practices at Korea Investment Corporation.
Administration was assigned to ministries and agencies including the Ministry of SMEs and Startups (South Korea), Korea Venture Business Association, and the Small and Medium Business Corporation (Korea). Enforcement mechanisms referenced administrative sanctions under the Framework Act on Administrative Regulations and compliance reporting akin to disclosure rules at Financial Supervisory Service (South Korea). Oversight drew on evaluation methodologies employed by OECD and audit functions comparable to those of the Board of Audit and Inspection (South Korea). Coordination with regional innovation clusters such as Songdo International Business District and science parks at Gwangju Institute of Science and Technology was specified.
Scholarship comparing outcomes cites growth in venture-backed exits through KOSDAQ IPOs, increased deal flow involving firms like Coupang and Naver Corporation, and expanded venture capital formation similar to trajectories in Silicon Valley. Metrics show transfer of technology from universities including Korea University to startups, and acceleration of spinouts from institutions such as Ewha Womans University. The Act contributed to establishment of accelerator networks like those linked to D.CAMP and fostered partnerships with multinational players such as SoftBank, affecting Korea’s position in rankings by World Bank and Global Entrepreneurship Monitor.
Critics pointed to concentration risks associated with chaebol-linked venture funds involving groups like Hyundai and LG Corporation, echoing concerns raised in debates about economic conglomerates during the Kim Young-sam era. Others identified regulatory arbitrage and moral hazard in guarantee schemes similar to critiques of Too big to fail policies, and barriers to regional inclusion outside Seoul such as in Busan and Daegu. Academic commentators from Sejong Institute and think tanks like Korea Institute of Finance flagged limited success in job creation compared with expectations, and challenges in scaling innovations beyond sectors dominated by firms like Samsung Electronics.
Since enactment, the Act underwent revisions influenced by administrations including Roh Moo-hyun and Moon Jae-in, with legislative input from committees of the National Assembly (South Korea) and policy research by entities such as Korea Development Institute. Amendments adjusted tax treatment, strengthened Financial Services Commission (South Korea) oversight, and expanded eligibility following models promoted by international partners including European Commission advisors and consultants formerly associated with McKinsey & Company. Subsequent modifications aligned the law with developments in digital platforms exemplified by Kakao and cross-border investment norms seen in agreements with partners such as Japan and United States.