Concerns are growing that the tech startup ecosystem in South Korea, home to global tech household name Samsung Electronics Co., would be trapped in a vicious circle of slow growth and investment, with the number of new tech startups in the country falling for four straight years last year amid dwindling funding.
The number of tech startups newly registered in Korea in 2024 stood at 214,917, down 2.9% from 2023, according to Korea’s Ministry of SMEs and Startups on Friday.
Asia’s fourth-largest economy has seen a fall in emerging tech entrepreneurs for four consecutive years from 239,620 in 2021.
The downturn in the Korean tech startup ecosystem is largely owed to waning funding from venture capitalists, said analysts.
FUNDING CRUNCH
The total foreign VC investment in Korean startups plummeted 59.5% from 2021 to 474.6 billion won ($325 million) in 2024, according to Seoul-based startup investment data company The VC.
Global VC investment accounted for 4.8% of total investment in Korean startups as of 2023 versus 6.6% in 2022.
While Korean tech startups have been grappling with diminishing funds, other countries, like India, boasting a unicorn tally second only to the world leader, the US, have enjoyed a steady stream of VC funds.
According to London-based investment data company Preqin, foreign capital made up a whopping 87% of total venture funds raised in India in 2023, followed by Singapore at 84%, the UK at 74% and Germany at 66%.
Foreign VC investment even in China, a country often deemed closed off to foreign capital, accounted for 12% of its total VC investment, while the US, aided by a strong domestic VC presence, attracted 7% capital from foreign investors.
With no sign of global VCs’ return, many Korean startups are increasingly relocating overseas.
NEW HOME ABROAD
Korean startups that found new homes in foreign countries hit 186 last year, a nearly sixfold increase from 2014 with 32, according to The VC.
One local AI startup’s chief said it was hard for him to raise funds from local VCs in the company’s early stages without additional conditions – like required collaboration with a large conglomerate – beyond its growth potential.
“The total funds I could raise in Korea was also too little compared with that in the US, making me think relocation to the US is a better option,” said the CEO.
While the global VC market has revived thanks to the AI boom, the Korean VC market remains lackluster.
Local VC investment reached 3.3 trillion won in the fourth quarter of 2024, a mere one-thirtieth of the VC investment in the US for the same period.
This could be one of the reasons that Seoul-based fabless AI chip startup FurisosaAI Inc. was reported to have tapped Meta Platforms Inc., the parent of Facebook and Instagram, to sell its stake for investment after failing to find local investors willing to inject large capital in the startup.
Industry observers said local institutional investors have become hesitant to invest in startups as they have not yet seen many successful exits from startup investment through initial public offerings.
AVOID RISK
VCs in Korea are also too shy to invest in early-stage startups, even though they are meant to pursue high-risk investments for high rewards.
According to the SMEs and Startups ministry on Friday, VC investment in startups with a history of three years or less shrank 17% on-year to 2.22 trillion won in 2024.
VC investment in early-stage startups dropped to 18.6% of the country’s total VC investment in 2024 from 26.9% in 2022.
Over the same period, VC investment in late-stage startups jumped from 38.7% to 53.3%.
Without drastic measures to encourage more VC investment in startups, the Korean tech startup ecosystem cannot escape the vicious no-funding, no-growth circle for a while, warned industry observers.
By Jeong-Hoon An
Ajh6321@hankyung.com
Sookyung Seo edited this article.
