Korea unveils measures to boost start-ups

The government plans to offer better tax breaks and incentives for investors and entrepreneurs investing and launching innovative start-ups as part of efforts to sustain the economy.

The Ministry of Strategy and Finance announced a package of measures to boost venture investments and support mergers and acquisitions after holding a meeting of economy-related ministries Wednesday.

The ministry said that it would allow investors and entrepreneurs to push back payments of capital gains tax when re-investing their gains in new start-ups.

They will also get up to 50 percent in income tax deductions should they provide capital as angel investors to business start-ups at an early stage.

Korea is seeking to change its business landscape, similar to the U.S., Israel and Germany, where start-ups and SMEs can strive in a bid to overcome low growth and youth unemployment.

The new government of President Park Geun-hye has been drawing up its master plan for a “creative economy” to re-establish an environment where entrepreneurs and investors are not afraid to launch businesses and re-invest even after failure.

“The measures for ventures are aimed at realizing the development of a creative economy, and boosting Korea to be a leader rather than a follower (of other economies),” said Deputy Prime Minister and Finance Minister Hyun Oh-seok.

Koreans have been reluctant to jump into the world of start-ups as there is a high risk at stake that only lead investors or entrepreneurs to go down two roads -- boom or bust.

Because the chance of failure is higher than success and that it takes on average more than 10 years for investors to redeem their investments usually via public offerings, general attitudes toward start-ups have not been positive, driving the young to compete for a limited number of stable jobs at conglomerates.

Korea has seen a lackluster cyclical flow of investment into start-ups despite efforts to promote the industry over the last 15 years.

The government seeks to cast off negative perceptions and other factors that have dragged on the creative venture sector through some 3.3 trillion won in funds to back technology developed by start-ups, as well as to buffer investment losses.

It will reduce corporate tax for buyers of start-ups, and ease listing regulations for venture firms looking to launch an initial public offering on the tech-heavy KOSDAQ or KONEX where investors could exit and retrieve their investments. Korea plans to launch the KONEX, an exchange exclusive to venture firms or tech-driven SMEs, in July.

The government will also devise a policy supporting the development of online funding platforms where even individual investors can make small investments in start-ups, the Finance Ministry said.

It hopes that the government measures will encourage the first generation of venture investors and entrepreneurs to re-invest in start-ups set up by the younger generation instead of hoarding their earnings.

With the establishment of the so-called venture eco-system, the government expects the venture industry to attract investment worth 10.6 trillion won over the next five years, up from its initial projection of 4.3 trillion won.

This is also envisaged to lead venture firms and SMEs to increase their much needed highly-skilled manpower.

By Park Hyong-ki
(hkp@heraldcorp.com)