As the venture capital and finance sectors express significant differences regarding the scope of responsibility in new technology financing, financial authorities have announced plans to examine investment contract practices that impose excessive burdens on one party. The government aims to improve contract practices by listening to diverse opinions from market participants.
The Financial Services Commission held a meeting on the 16th, chaired by Kim Jin-hong, Director of the Financial Industry Bureau, to promote responsible investment in the new technology finance sector while ensuring smooth funding for startups and technology companies and fostering a healthy investment environment.
During the meeting, participants discussed whether existing investment contract practices could impose excessive burdens on investing companies and explored ways to harmonize policy goals of investment activation, moral hazard prevention, and revitalizing the startup ecosystem. Investors, venture companies, and private experts shared various opinions.
The venture industry argues that joint liability for individuals should be completely restricted, while the investment sector contends that joint liability is necessary to reflect the characteristics of the new technology finance industry. Private experts emphasized the need for improvements in the market's contract culture and the potential introduction of technical regulations if joint liability is limited.
Han In-bae, a section chief at the Korea Venture Business Association, stated, "The prohibition of joint liability should be applied to the new technology finance sector as well, clearly distinguishing between normal business failures and illegal or unjust acts. The same principle of responsibility should apply to all venture investments, regardless of the type of investment institution."
Choi Ji-young, representative of the Korea Startup Forum, remarked, "It may seem unreasonable from a startup's perspective that the personal responsibility of founders varies depending on which fund they received investment from. The principle that normal business failure risks should not be transferred to founders must be upheld. When investors propose joint liability, it is difficult for the weaker negotiating position of the invested company to reject the investor's proposal, so it should be limited to the entire company, with exceptions allowed for corporations."
Jo Young-rin, CEO of Evertreasure, noted, "In countries like the United States, investors accept investment losses, and reinvestment in failed founders is actively pursued. Unless there is intent or gross negligence, personal liability should be prohibited regardless of the duration of business operations, and even indirect liability transfer, such as through put options, should be restricted to establish a true venture capital culture where investors share risks."
The investment sector believes that the new technology finance and venture investment sectors should be viewed differently. Kim Bong-seop, head of Growth Finance, stated, "New technology finance serves as a channel for raising funds for mid-sized companies and has characteristics of the financial industry. Applying the same joint liability restrictions as the Venture Investment Promotion Act, which was introduced to foster venture growth, could hinder industrial development. While a prohibition on policy funds is necessary, a blanket ban on private funds is excessive."
Heo Byeong-du, head of Aju IB Investment, commented, "The reason there is no joint liability debate overseas is that various investor protection measures, such as management participation and priority in liquidation, are in place. It is inappropriate to limit joint liability without introducing stability measures domestically."
Gil Jun-gil, executive director of Hana Ventures, suggested, "It is not appropriate to uniformly apply the joint liability restrictions of the venture sector to the new technology sector, which has different characteristics in terms of capital and movement patterns. Rather than a blanket prohibition in law, I hope investors can apply it autonomously on a case-by-case basis. The controversy arises because the recovery market does not operate smoothly, so it is also necessary to create an ecosystem where investors can recover their funds through revitalization of the recovery market."
Private experts advised that the issue of joint liability in the new technology sector should be approached in various ways. Park Yong-rin, a senior researcher at the Capital Market Research Institute, stated, "According to the principle of equal function and equal regulation, if new technology finance and venture capital have the same functions, it is desirable to introduce the same regulations. However, due to the different characteristics of the two sectors, it is difficult to implement uniform regulations, and detailed consideration of technical matters is necessary."
Lee Jong-geon, a lawyer at the law firm Lee & Partners, expressed, "While there is consensus that joint liability for individual founders is undesirable, the issue lies in the method. It is preferable to resolve this through improvements in the market's contract culture rather than through uniform restrictions via legal amendments."
Lee Jin, Deputy Governor of the Financial Supervisory Service, stated, "Unlike loans, investments share profits and risks between founders and investors, so imposing joint liability for business failures that founders cannot control should be avoided. Various protective measures can ensure moral hazard prevention and recovery."
Kim Jin-hong, Director of the Financial Industry Bureau, concluded, "We will continue to listen to the opinions of the venture industry, investors, and private experts to promote responsible investment while creating an investment environment that allows for smooth funding for startups and technology companies. We will closely examine whether there are investment contract practices that impose excessive burdens on one party and, if necessary, pursue various measures such as model standards and legal improvements."
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.