Economic and Political Unrest Hits South Korea’s VC Sector

Economic uncertainty and political turmoil have cast a shadow on the South Korea’s Venture Capital (VC) market, which had a tough start to the year, over the deal making in the first quarter of the year, PitchBook, the definitive source for global capital market data, said.

According to PitchBook’s Q1 2025 South Korea Market Snapshot, around $600 million was invested across 254 deals in the first three months of the year. Deal value was down nearly 65% from Q4, while the number of rounds fell 21.8% over the same period.

Furthermore, the absence of liquidity has put pressure on the country’s VC market, while a wider economic stagnation, exacerbated by former President Yoon Suk Yeol’s failed attempt to put the country under martial law in December 2024, has contributed to chilling investor sentiment.

Capital is also more concentrated. Late-stage rounds still account for the majority of South Korea’s total deal value at 60% in the first quarter, as investors took a more cautious approach to investments. It also reflected a diminishing pipeline of early-stage opportunities, the report said.

According to South Korea’s Ministry of SMEs and Start-ups, the country had around 1.2 million start-ups as of last year, down 4.5% from the previous year.

Competition in high-growth sectors such as ecommerce and mobility has intensified as South Korean start-ups mature. It’s becoming harder for new start-ups to find a unique angle with enough space to grow in these sectors.

Additionally, the baseline for innovation is much higher in today’s start-up climate due to rapid technological advancements in areas such as AI and robotics.

New Fund Launched

South Korea’s government has been implementing measures to support the country’s start-ups and In April, the Ministry of SMEs and Start-ups launched a new fund to revitalise the ecosystem. It is seeking around $420 million from public and private sources.

Also, the government teamed up with US VC firms Patron Management, Third Prime Capital and ACVC Partners for a $200 million cross-border start-up fund this year, which will invest at least $30 million in Korean start-ups in areas such as AI and robotics.

This is the second vehicle established under the “Start-up Korea Fund” project and the initiative aims to raise over $1.38 billion between 2024 and 2027.

The majority of the fund’s capital comes from the private sector, with 30 LPs contributing over $230 million so far. Corporations including steel manufacturer Posco and semiconductor company LX Semicon are participating in the fund.

According to PitchBook data, VC funding for South Korean start-ups has steadily declined since 2020’s peak of $24.1 billion and this year’s first quarter registered its worst quarterly deal value figure since Q3 of 2018.

The country’s start-ups are facing a challenging macro environment, impacted by the economic slowdown caused by the US tariff policies and the US-China trade war, which was settled amicably a few days ago.

Additionally, domestic economic stagnation due to high inflation, exchange and interest rates is putting pressure on the companies. There were around 1.2 million start-ups at the start of the year, down 4.5% from the previous year, according to the Ministry of SMEs and Start-ups.