Summary:
South Korea's tech startup ecosystem is experiencing a severe decline due to dwindling funding.
New tech startups registered in 2024 fell by 2.9%, totaling 214,917.
Total foreign VC investment dropped by 59.5% to 474.6 billion won in 2024.
Korean startups are increasingly relocating overseas due to funding challenges.
Local VC investment in early-stage startups decreased to 18.6% of total VC investment.
Concerns are escalating regarding the tech startup ecosystem in South Korea, home to the global giant Samsung Electronics Co. The industry is facing a vicious cycle of slow growth and diminishing investment, with the number of new tech startups registering a 2.9% decline in 2024, totaling 214,917 startups. This marks the fourth consecutive year of decline from 239,620 in 2021, according to the Ministry of SMEs and Startups.
Funding Crunch
The downturn is largely attributed to a significant reduction in funding from venture capitalists. In 2024, total foreign VC investment in Korean startups dropped a staggering 59.5% to 474.6 billion won (approximately $325 million). The share of global VC investment in Korean startups fell from 6.6% in 2022 to 4.8% in 2023.
While Korean tech startups struggle with funding shortages, countries like India are thriving, attracting 87% of total venture funds raised from foreign capital in 2023. Even China, often viewed as closed off to foreign investments, secured 12% of its total VC funding from abroad.
New Home Abroad
As a result of the funding drought, many Korean startups are relocating overseas. In 2024, 186 Korean startups found new homes abroad, a near sixfold increase from just 32 in 2014. One AI startup CEO revealed the difficulty of raising funds from local VCs without additional conditions, leading him to consider the US as a more favorable option for securing investment.
While the global VC market is experiencing a revival, especially due to the AI boom, the Korean VC market remains stagnant. Local VC investment reached 3.3 trillion won in Q4 2024, which is just one-thirtieth of the VC investment seen in the US during the same period.
Industry experts note that local institutional investors are hesitant to invest due to the lack of successful exits from startup investments. VC investments in early-stage startups have dropped significantly, from 26.9% in 2022 to 18.6% in 2024, while late-stage investments surged from 38.7% to 53.3%.
Without significant changes to encourage VC investment, South Korea’s tech startup ecosystem may remain trapped in a no-funding, no-growth cycle for the foreseeable future.
Write to Jeong-Hoon An at Ajh6321@hankyung.com
Edited by Sookyung Seo.
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