A group of lawmakers, professors and industry officials on June 11 urged the government to relax regulations that have prevented the marriage between industrial and financial capital, stressing that it hinders growth of corporate venture capital.
The South Korean government has long prevented non-financial holding companies from wholly owning financial entities due to concerns on the excessive influence of business titans over both industrial and financial segments.
Kim Byung-wook (third from left), a lawmaker from the ruling Democratic Party of Korea, delivers a speech at a meeting at the National Assembly to discuss corporate venture capitals and the local startup market. (Kim Young-won/The Korea Herald)
Despite its purpose to promote fairness in the nation’s economy, such regulation has blocked the startup industry from receiving funds directly from deep-pocketed conglomerates, posing a hurdle for the startup market to advance to the next level.
“The nation is making some progress in fixing corruption and unfair business practices by conglomerates, and now it is time to consider a virtuous circle between conglomerates, venture capital and startups,” said Kim Byung-wook, a lawmaker from the ruling Democratic Party of Korea, at a meeting in Seoul to discuss how to take the local startup sector up a notch via corporate venture capitals.
“Corporate venture capitals, or CVCs, formed by conglomerates, could serve as sources for innovation for ventures and startups, and vitalize the overall startup market.”
Kim said the existing rule that bans conglomerates from owning financial firms should be altered to align with the global trend. Global tech giants, such as Google’s holding firm Alphabet and Intel, for example, create CVCs to directly invest in startups. Nearly 30 percent of venture capital investments were made via CVCs in the global market, and some 300 CVCs are established every year, according to data presented by Kim Do-hyun, a Kookmin University professor who took part in the Thursday meeting.
Although there are some local startups that have become unicorns with valuations of $1 billion or greater, it is hard to find merger and acquisition deals of those companies by conglomerates because of the strict regulation.
“In order to beef up the startup industry’s competitiveness in the global market, the investment ecosystem should grow in size by allowing conglomerates to create CVCs and make direct investments in those unicorn startups,” said Choi Seong-jin, chief of the Korea Startup Forum, an organization representing domestic startups. “That way, unicorns could increase their global presence, and the digital industry could gain an upper end in competition with global markets.”
Among participants at the meeting were lawmakers Lee Nak-yon and Lee Won-wook, as well as Yoo Woong-hwan, head of SK Group’s startup accelerator SV Innovation Center.
By Kim Young-won (firstname.lastname@example.org)