Practical Guide to Operating an Individual Investment Association

Once you have formed and registered an individual investment association, the actual operations begin. Running an association is far more complex than forming one and takes place over a long period of time. This article explains the entire process of association operations in detail from the perspective of the GPGeneral Partner / Limited Partner
GP (General Partner) manages the fund; LP (Limited Partner) provides capital as an investor.1 related guides (managing partner).

Investment Decision-Making Process

Deal Sourcing: Finding Investment Candidates

Finding quality investment opportunities is the first key to successful association operations. The main deal sourcing channels are as follows:

Network-based introductions: Introductions through the GP's personal network are the most common. It is important to maintain relationships with founders, VCs, acceleratorsAccelerator (AC)
Organizations providing investment, mentoring, education, and networking to early-stage startups, registered with MSS.1 related guides, university business incubators, and similar contacts.

Angel clubs and associations: The Korea Business Angel Association (KBAN) and various angel clubs hold regular startup IR (investor relations) presentations. This allows you to meet a variety of investment candidates.

Accelerator Demo Days: The graduation demo day of each accelerator's batch is an excellent opportunity to meet vetted early-stage startups.

Platform-based sourcing: Investment candidates can also be found on online investment platforms such as Wadiz and Open Trade.

Pre-screening

Review the basic suitability of received investment proposals.

• Venture enterprise certification status
• Fit with the association's investment theme/sector
• Matching with the investment stage (seed, Series A, etc.)
• Suitability of the requested investment amount
• Basic background of the CEO/team

Most proposals are filtered out at this stage. It is common for only 5 to 10 out of 100 to proceed to in-depth screening.

Due Diligence

Conduct thorough investigation of companies that pass the pre-screening.

Business due diligence: - Business model analysis (revenue structure, customer acquisition method, unit economics) - Market analysis (market size, growth outlook, competitive landscape) - Product/technology verification (actual product testing, confirming technological differentiation) - Customer reference checks (direct interviews with key customers)

Financial due diligence: - Financial statement analysis (most recent 3 years) - Capital structure review (shareholder composition, previous investment rounds) - Cash flow and runway calculation - Tax filing history

Legal due diligence: - Review of corporate registration details - Intellectual property holdings status - Pending litigation - Review of key contracts (customer contracts, partnership agreements)

Team due diligence: - Verification of founding team members' individual backgrounds - Risk of departure by key members - Equity structure of key team members and vesting schedule

Investment Decision and Contract Execution

After due diligence, if an investment is decided upon, negotiate the investment terms (Term Sheet) and execute the Shareholders Agreement (SHA) and Share Purchase Agreement (SPA).

Key items in the investment terms: - Investment amount and number of shares - Pre- and post-investment company valuationBusiness Valuation
The process of determining the economic value of a business in monetary terms using methods like DCF and multiples.1 related guides (Pre/Post Valuation) - Share type (common stock, preferred stock, convertible bonds, etc.) - Anti-dilution clause - Director appointment right - Information disclosure obligation

After the contract is executed, transferring the investment funds from the association account to the company completes the investment.

Venture Enterprise Discovery and Screening Criteria

Clearly defining the association's investment criteria enables consistent portfolio construction. The following is an example of commonly used screening criteria.

The NABC Framework

• N (Needs): Is the problem being solved sufficiently large and real?
• A (Approach): Is the method for solving the problem innovative and executable?
• B (Benefits): Are the benefits to customers clearly quantifiable?
• C (Competition): Is the differentiation versus competition sustainable?

Investment Rejection Criteria (Red Flags)

Any of the following should trigger reconsideration of the investment:

• Dishonest behavior by the founder or issues discovered in reference checks
• Capital impairment with no turnaround plan
• Ongoing patent disputes or legal issues
• Multiple key team members departing within a short period
• Exaggerated revenue figures or falsified financial documents

Post-Investment Management

Post-investment company management is an important activity that determines long-term investment performance.

Board Attendance and Participation

In accordance with the investment agreement, the GP attends board meetings as a director or observer. Through board attendance:

• Monitor major decision-making of the company
• Provide advice to management when needed
• Receive regular reports on the financial situation

Board meetings are typically held at least once per quarter.

Management Advisory

The GP should act not merely as a source of funds, but as Smart Money — providing the portfolio company with networks, experience, and expertise in addition to investment capital.

• Connect with follow-on investors (introductions to VCs and strategic investors)
• Support key talent recruitment
• Introduce major customers and partners
• Advise on business strategy

Receiving Regular Reports

Receive the following information regularly from investee companies:

• Monthly financial reports (revenue, expenditure, cash balance)
• Quarterly business status reports
• Annual audit reports

Based on this information, report the overall portfolio status of the association to the LPs.

Settlement and Member Reporting Obligations

Individual investment associations have a legal obligation for periodic settlement and member reporting.

Annual Settlement

Settlement must be completed within 3 months after the end of the fiscal year (typically January 1 to December 31). Settlement includes the following:

• Association balance sheet (remaining contributions, investment portfolio status, cash balance)
• Revenue status (unrealized evaluation gains/losses, realized profits)
• Cost status (management fees, operating expenses)
• Contribution amount and assessed value per member

Member Reporting

After settlement is complete, send individual reports to each member. Reports include the following:

• The member's contribution amount and equity ratio
• Overall portfolio status and major events
• Summary of status of individual investee companies
• Investment amount details required for income deductionIncome Tax Deduction
  Tax deduction system for venture enterprise investment: 100% for up to 30M KRW, 70% for 30-50M KRW, 30% for over 50M KRW.1 related guides applications (basic data for KBAN investment confirmation issuance)

KBAN Reporting

The GP of an individual investment association must report annual operating status to KBAN, and KBAN processes the issuance of investment confirmations for LPs based on this.

EXITExit
The process by which investors recover their investment through IPO, M&A, or secondary sale.1 related guides Strategies

EXIT is the final stage where investment returns are realized. Various EXIT routes should be considered in advance.

IPO (Initial Public Offering)

When a portfolio company lists on the stock market (KOSDAQ, KOSPI), you can EXIT by selling shares on the public market. IPO is the most ideal EXIT with the potential for high returns, but the time until listing is long and there is a lock-up period (6 months to 1 year after listing).

M&A (Mergers and Acquisitions)

This is when a portfolio company is acquired by a strategic investor or large corporation. The M&A market is more active overseas than domestically, and startup M&A often occurs within 2 to 5 years.

Secondary Sale

Selling investment shares to another investor (secondary fund or another angel). This is a practical way to secure liquidity for unlisted shares that have no public market, but finding the right price is difficult and securing buyers is not easy.

Dividends

When a portfolio company generates sufficient profits, recovering returns through dividends is possible. This is rare for early-stage startups, but is possible for companies with a stable revenue base.

Determining EXIT Priority

As the association's operating period draws to a close, investments that have not yet been exited must be resolved. In this process:

1. IPO candidates: Prioritize pursuing listing for companies with IPO potential
2. Acquisition candidates: Actively approach potential M&A acquirers
3. Write-offs: Process as losses for companies with no EXIT prospects

Association Dissolution Procedure

Upon expiration of the operating period or dissolution by agreement of members, follow these steps:

1. Convene a general meeting of members and pass a dissolution resolution
2. Liquidate the remaining portfolio (EXIT or distribution in kind)
3. Repay association liabilities
4. Distribute remaining assets to members according to their equity ratios
5. Report dissolution to the Ministry of SMEs and Startups
6. Notify KBAN of dissolution

Profits generated during the liquidation process are distributed according to the member profit distribution structure, and the GP settles the performance fee.

Operating an individual investment association is not simply managing funds — it is a long-term partnership that grows together within the startup ecosystem. The GP's diligent and professional management is the key to driving both member returns and startup growth.