[Edaily Marketin, Reporter Won Jae-yeon ] A self-regulatory program designed to evaluate the level of internal controls within the venture capital (VC) industry has entered its second year of implementation, but controversy over its effectiveness is growing. While the program’s influence has increased this year—as management firms receiving a “excellent” rating are now awarded bonus points in the master fund investment program—there are significant concerns that the evaluation system favors medium- to large-sized management firms, and doubts remain as to whether it is actually leading to improvements in internal controls.

According to the venture capital industry on the 29th, the Korea Venture Capital Association announced the “2026 Venture Capital Self-Regulatory Program Evaluation Plan for Participating Firms” on the 27th and began recruiting participating firms. Applications will be accepted until the 14th of next month, and final ratings are scheduled to be determined this December following written and on-site evaluations.

The VC self-regulation program is a system that evaluates fund managers’ ethical standards and internal control levels and assigns grades of S, A+, A, B, C, or D. Key evaluation criteria include the management of employees’ private investments and conflicts of interest, investment contract review procedures, the operation of compliance officers, and risk management before and after investments.

During last year’s inaugural evaluation, concerns were raised that the system favored medium- and large-sized firms. Of the 20 firms that received an A rating or higher last year, 12 were medium- and large-sized firms with assets under management (AUM) of 500 billion won or more. Eight firms had AUM of 1 trillion won or more.

Although some small and medium-sized firms received an “S” grade, it was pointed out that large VC firms and those affiliated with financial institutions—which have compliance officers, legal teams, and separate internal control organizations—had an advantage in the evaluation.

However, the rate at which top ratings actually led to selection for the master fund remained at around 50 percent. Based on this year’s first regular round of the master fund investment program, 10 firms that received a grade of A or higher last year applied; of these, 7 passed the document screening, and 5 were ultimately selected.

Even when looking solely at the highest grade, “S,” the results were not overwhelming. All five firms that received an “S” grade applied for the investment program, but only two—IM Investment Partners and Shinhan Venture Investment—were ultimately selected, resulting in a selection rate of 40%.

While an “Excellent” rating may have influenced the document screening, the final selection takes into account factors such as management personnel, investment performance, and competition rates by sector. Some point out that the effectiveness of the system can only be assessed once the bonus points assigned by rating and the changes in rankings before and after applying those points are made public.

This year’s evaluation will be even stricter, focusing primarily on submitted documents. Last year, even if submitted materials were insufficient, on-site inspections confirmed actual operations and allowed for the supplementation of materials; however, the association has announced that, starting this year, evaluations will be based primarily on the qualitative evaluation forms and supporting documents submitted in advance.

This means that even if internal control activities are actually being carried out, it will be difficult to earn points unless the planning, review process, and results are documented. Internal control inspection plans must be approved in advance, separate from the results report, and a results report detailing inspection records, deficiencies, and corrective actions must also be prepared separately.

In particular, a company-wide risk management system covering the pre-investment, investment, and post-investment phases was identified as a key criterion distinguishing Grade S from Grade A+. Requirements such as risk classification by industry and growth stage, the operation of a risk management committee, and post-investment management based on the risk ratings of portfolio companies favor medium- to large-sized firms that have dedicated legal and compliance personnel and internal systems in place.

On the other hand, if a firm aims solely for an A rating to receive bonus points from the master fund, it is possible to prepare all quantitative evaluation items without omission and secure a “moderate” level in the internal control compliance review.

While the industry agrees that documented evidence is necessary to ensure the objectivity of the evaluation, there are concerns that the completeness of documentation and systems—rather than actual incident prevention capabilities—may determine the final score. Since investment staff at small and medium-sized firms often handle compliance tasks and evaluation preparations simultaneously, applying the same standards could place a greater burden on their personnel and finances.

A venture capital (VC) official stated, “Since the timing of self-regulation adoption and existing internal control levels vary by company, applying the same evaluation period and documentation standards could put new participants at a relative disadvantage,” adding, “It is necessary to evaluate not only whether formal documentation is in place but also the actual period of operation and efforts to improve internal controls.”