Overview of Individual Investment Associations (Angel Funds)
A comprehensive overview of the Individual Investment Association structure, benefits, and drawbacks under Korea's Venture Investment Promotion Act.
Overview of Individual Investment Associations (Angel Funds)
If you want to invest in ventures but lack investment experience, want to diversify across multiple companies, or need professional management expertise, an individual investment association is an excellent alternative. Individual investment associations are a vehicle where individual investors pool their contributions to invest collectively in venture enterprises under the direction of a professional manager (GPGeneral Partner / Limited Partner
GP (General Partner) manages the fund; LP (Limited Partner) provides capital as an investor.), and they play an important role in Korea's venture ecosystem.
What Is an Individual Investment Association?
An individual investment association is a civil law partnership where multiple individuals pool funds to invest jointly in venture enterprises. It has a structure similar to a fund, but unlike venture capital (VC) funds centered on institutional investors, its distinguishing feature is that individuals can participate directly.
The core concept of an individual investment association is pooling. Members can combine their funds to access investment opportunities or scales that would be difficult for individual investors to reach on their own.
Legal Basis
Individual investment associations are based on the 「Act on Promotion of Venture InvestmentAct on Promotion of Venture Investment
Law enacted in 2020 dedicated to venture investment. Regulates venture investment unions, angel funds, and investment confirmation certificates.」(Venture Investment Promotion Act). This act came into effect in August 2020, consolidating and reorganizing related provisions from the former 「Support for Small and Medium Enterprise Establishment Act」 and 「Special Act on Fostering Venture Businesses」.
Under the Venture Investment Promotion Act, the Ministry of SMEs and Startups handles the registration and management of individual investment associations, and tax benefits apply only to registered associations. Investment in unregistered associations is not eligible for the income deduction benefit.
Basic Structure of the Association
An individual investment association is largely composed of GPs (General Partners, managing partners) and LPs (Limited Partners).
GP (General Partner)
The GP is responsible for all aspects of the association's operations.
- Sourcing, screening, and executing investments in target companies
- Post-investment management of portfolio companies
- Settlement and reporting to association members
- Asset liquidation upon dissolution of the association
The GP is typically a professional angel investorProfessional Angel Investor
Individual investor registered with KBAN with venture investment track record, potentially eligible for higher deduction rates. with investment experience, a former venture capital professional, or a technology specialist. GPs generally also contribute a certain amount to the association themselves, which aligns the GP's interests with those of the LPs.
LP (Limited Partner)
LPs are investors who contribute funds and do not directly participate in the association's operations.
- Contribution obligation (within the committed amount)
- Loss liability limited to the contributed amount (limited liability)
- Receipt of distributions and profit sharing
- Exercise of voting rights at the general meeting of members
LPs can participate in various scales, from small amounts (a few million KRW) to large amounts (hundreds of millions of KRW).
Minimum Member Requirements
Under the Venture Investment Promotion Act, an individual investment association must be formed by a minimum of 2 or more persons — that is, at least 1 GP + 1 LP is sufficient to form an association.
Contribution Size
The Venture Investment Promotion Act stipulates that the minimum formation contribution for an individual investment association is 100M KRW or more. This standard is set to prevent excessively small associations from proliferating and to guarantee the minimum scale needed for genuine venture investment.
In practice, the following sizes are common:
- Small association: 100M ~ 500M KRW (small angel groups, early-stage startup investment)
- Medium association: 500M ~ 3B KRW (professional angel clubs, seed to Series A investment)
- Large association: 3B KRW or more (institutional-grade angels, Series A to B investment)
Operating Period
The operating period of an individual investment association is generally 5 to 10 years, as time is needed from investment to EXITExit
The process by which investors recover their investment through IPO, M&A, or secondary sale.. In venture investment, EXIT takes place through IPO, M&A, secondary sale, and similar methods; for early-stage startups, EXIT often occurs within 5 to 7 years after investment.
The operating period is specified in the articles of association at the time of formation, and can be extended with the consent of members as needed.
Advantages of Individual Investment Associations
1. Income Deduction Benefit
Members can receive income deductionsIncome 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. on the amount contributed to the association under Article 16 of the STTCA. The same tiered deduction rates that apply to direct investments apply here.
2. Diversification Effect
Because the association invests in multiple companies, individual investors can reduce the concentration risk that comes with investing in a single company. The portfolio effect lowers the overall investment risk.
3. Professional Management
You can leverage the GP's professional expertise. Even individual investors with limited investment experience can access quality investment opportunities through the judgment of a specialist.
4. Small-Scale Participation Possible
While the minimum contribution for the association as a whole is 100M KRW, the minimum contribution for individual LPs can be set at 10M KRW to 30M KRW depending on the association's bylaws.
5. Networking Effect
You can build a network with other investors participating in the same association and share investment experience. This helps develop independent investment capabilities for the future.
Disadvantages of Individual Investment Associations
1. Liquidity Constraints
Contributions are in principle not redeemable during the operating period (5 to 10 years). Even if you need funds in between, it is difficult to freely convert your contribution interest into cash. Transfer of the interest to another member is possible, but this too is often difficult in practice.
2. Management Risk
LP returns depend heavily on the GP's investment judgment. Returns can vary greatly depending on the GP's capabilities, integrity, and network; in the worst case, the entire principal can be lost.
3. Information Asymmetry
Since LPs do not directly participate in investment decisions, they have less information about individual investments than the GP. It is important to clearly specify regular reporting obligations in the association bylaws.
4. Management Costs
The GP charges a Management Fee — generally at a rate of 1 to 2% of the contributed amount per year. A Performance Fee (Carry) also arises upon EXIT. These costs are deducted from investment returns.
5. Delayed Timing of Income Deduction
Since the income deduction corresponds to the amount actually invested by the association in venture enterprises, if you have made your contribution but the association has not yet deployed the investment, you cannot claim the income deduction. The timing of the deduction varies depending on how quickly the association deploys its investments.
Individual Investment Association vs. Direct Investment Comparison
| Item | Individual Investment Association | Direct Investment |
|---|---|---|
| Minimum investment | Varies by association bylaws | No minimum |
| Diversification | Automatic diversification via association portfolio | Individual decision |
| Expertise | Utilizes GP expertise | Requires investor's own capabilities |
| Timing of income deduction | After association deploys investment | Immediately after investment |
| Liquidity | Low (fixed operating period) | Relatively higher |
| Investment decision-making | GP-led | Investor decides directly |
| Management costs | Management fee + performance fee | None |
Individual investment associations are particularly advantageous for investors with limited experience or who find it difficult to dedicate time to sourcing companies directly. On the other hand, investors who want to make investment decisions themselves or prefer concentrated investment in specific companies are better suited to direct investment.
As Korea's venture investment ecosystem matures, individual investment associations are becoming increasingly diverse. Angel clubs, impact investment associations, and thematic investment associations are proliferating, broadening the options available to investors.