The South Korean startup ecosystem in 2025 experienced a contradictory year, one marked by both unprecedented achievements and structural crises. While Seoul leaped to eighth place in the global startup ecosystem rankings, rivaling London, New York, and Silicon Valley, early-stage investment—the very foundation of the ecosystem—continued to experience a virtual ice age.
However, it is encouraging that Seoul ranked first in "Knowledge" accumulation among global cities, demonstrating its overwhelming R&D capabilities and patented technologies. The problem is that early-stage startups, with uncertain immediate revenue models, are struggling with funding shortages and threatening their survival. This suggests that the Korean startup ecosystem is losing its diversity and becoming entrenched in a "winner-takes-all" structure dominated by a select few. 2026 will be a crucial year to determine whether this imbalance can be resolved and whether accumulated technological prowess can create a virtuous cycle that leads to actual startups and exits.
The paradox of a "knowledge powerhouse": world-leading technology, but deepening financial hardening.
According to a 2025 report released by major global research firms such as Startup Genome and KPMG , the external growth of the Korean startup ecosystem is remarkable. Seoul rose one spot to 8th place in the global ecosystem rankings from the previous year, and notably ranked first in the "Knowledge" category, which measures the qualitative maturity of the ecosystem. This achievement, combined with the outstanding human resources of universities and research institutes, a wealth of patents, and active R&D activities, demonstrates Korea's global competitiveness in deep tech. Furthermore, it ranked 5th globally in funding, reaffirming its position as Asia's leading provider of capital access.
Actual investment figures also showed signs of recovery. According to statistics from the Ministry of SMEs and Startups, cumulative new venture investment through the third quarter of 2025 reached KRW 9.778 trillion, a 13.1% increase year-on-year. The fact that nearly KRW 10 trillion was supplied to the market despite persistent high interest rates and macroeconomic uncertainty is a positive sign. However, a closer look at the statistics reveals an optical illusion. While the investment amount increased, the number of deals actually plummeted by a staggering 34.2%. This suggests that "mega deals," where large sums of money are funneled into a small number of proven companies, are driving the market.
According to industry data, early-stage startups were the biggest victims of this concentration. As of November 2025, investment in early-stage companies established less than three years ago plummeted by 57.7% year-on-year. With investment at the pre-Series A stage drying up, entrepreneurs with innovative ideas are increasingly being frustrated during the prototyping and market validation stages. An investment industry insider analyzed, "The market was dominated throughout 2025 by a safety-conscious mindset, with investors preferring to invest in later-stage companies with immediate sales or a looming IPO, rather than early-stage companies with a high probability of failure."
The convergence of AI and manufacturing is accelerating the "rich get richer, poor get poorer" trend.
This polarization is also intertwined with shifting global technological trends. The keyword that will dominate the venture capital market in 2025 is undoubtedly the combination of "artificial intelligence (AI)" and "manufacturing," or "physical AI." As generative AI expands beyond text and images into the physical world, massive amounts of funding are flowing into "physical AI," which controls robots and hardware, and "agentic AI," which enables autonomous decision-making and action.
Korea has demonstrated strength in this field, thanks to the infrastructure of global manufacturing giants like Samsung and LG, as well as its superior hardware engineering technology. Indeed, in the third quarter of 2025, manufacturing and hardware-based AI startups swept the investment landscape. A prime example is Rebellion, an AI semiconductor startup mentioned in a KPMG report, which raised approximately 325 billion won in Series C funding. In contrast, startups focused on platforms or simple service models faced challenges in securing funding, facing investor scrutiny.
StartupBlink noted, "While Korea demonstrated unparalleled strength in hardware engineering and manufacturing, and Seoul ranked eighth globally in the 'Social & Leisure' industry, its ecosystem growth rate (23.7%) is slowing compared to China (45.9%) and Japan (36%)." This is interpreted as a warning that concentrated growth in specific sectors could diminish the dynamism of the entire ecosystem.
By 2026, we will be bolstering the ecosystem with 30 trillion won in "real-time ammunition."
To correct this "abnormal growth," the government has set 2026 as the first year of a leap forward in the ecosystem and has put forth a strong prescription. According to the "Strategy to Become One of the Top 4 Venture Powerhouses" announced by the Ministry of SMEs and Startups, over 30 trillion won in venture investment is expected to be concentrated in 2026 alone. The most notable aspect is the emphasis on "regional" and "early-stage" ventures. At least 40% of all funds will be mandatorily allocated to non-metropolitan areas, and priority will be given to regional companies in TIPS program selection, alleviating the "Republic of Seoul" phenomenon.
The Seoul Metropolitan Government has also committed to restoring the growth ladder from startups to unicorns by injecting 4 trillion won through the "Seoul Vision 2030 Fund" and establishing the world's largest "Unicorn Startup Hub" in Seongsu-dong. The potential of regional hub cities has been confirmed, with Daejeon rising rapidly to 366th place globally, centered around the Science Business Belt, and Daegu and Gwangju recording triple-digit ranking gains. Therefore, attention is focused on whether government funding can act as a catalyst for these regional ecosystems.
However, experts agree that simply providing capital has its limits. As the Startup Genome report pointed out, the average exit time in Seoul is prolonging to 9.2 years, a challenge that urgently needs to be addressed. The virtuous cycle of recovering and reinvesting investment funds is blocked, increasing the burden of early-stage investment. To attract private capital back into early-stage companies, the M&A market must be revitalized and secondary funds (stock deals) must be expanded to provide investors with diverse exit options. To this end, startup ecosystems such as Venture Square are attempting to establish forums and provide practical training programs to promote private-sector M&A.
Interest in mobilizing the startup ecosystem, including micro-M&A and STOs, is also growing.
In 2026, the Korean startup ecosystem stands at a crossroads, between the comfort of being the "leading knowledge leader" and the sense of crisis stemming from the collapse of early-stage investments. As the global race for AI supremacy intensifies, venture capital must regain its wildness if Korea's overwhelming technological assets are to survive. The government's 30 trillion won investment is merely a stepping stone; ultimately, a culture that embraces failure and open innovation between large corporations and startups must underpin this.
In particular, 2026 is expected to see tangible results, including the relaxation of special listing requirements for deep tech companies and the improvement of regulations for corporate venture capital (CVC). If these policy initiatives succeed, leading to the emergence of local deep tech unicorns and a rebound in the survival rate of early-stage startups, Korea will be able to enter the ranks of the "global venture powerhouses." Its technological prowess has already reached the pinnacle of the global market. What's needed now is a fertile and balanced foundation for that technology to blossom into a business.