Seoul and San Francisco, June 28th – Among the Far-Eastern countries, there are quite a few fast-growing tech ecosystems bound to establish themselves as global innovation hubs. South Korea is without any doubt one of them. The country’s innovation scene is in fact experiencing a never-seen-before momentum, as highlighted by the two Reports “Tech Scaleup South Korea 2021” and “Corporate Innovation in South Korea 2021” produced with the support of KITA and presented today in Seoul at the NextRise event. 

“Between 2014 and 2020, the country made a leap from a virtually non-existent scaleup scene towards a stable year-over-year increase in terms of new scaleups and capital raised. – commented Marco Marinucci, CEO and founder of Mind the Bridge, during its presentation at NextRise – Focusing on 2020, the country has generated a total of 146 new scaleups raising a total of $3.4B in new funding. The ability of South Korea to quickly reactivate the country’s innovation ecosystem from the pandemic has preserved the growth path for the entire 2020 up to Q1 2021”. 

The growth speed of some of the largest scaleups is quite a unique trait of the South Korean system. By restricting the analysis to the Scalers only (scaleups to be able to attract $100M+ in funding), South Korean tech giants grow fast: on average they are 6-7 years old (average founding year is 2014), while their European comparables are about 9 years old (average founding year is 2012).

“A total of 15 fast growing scaleups were founded in 2020 and turned into scaleups in less than 12 months time frame. This is yet another hint to the vibrancy of the local innovation ecosystem, capable of driving significant early stage investment that can fuel startups – added Alberto Onetti, Chairman Mind the Bridge – South Korea represents a runner-up able to maintain and foster a healthy ecosystem that includes a substantial amount of tech giants. The peninsular country achieved results that are comparable to some of the most established tech scaleup ecosystems in the world, including Germany, France, and UAE.”

As of Q1 2021, the Report in fact identified 889 scaleups (+25.6% from 2019) that raised a total of $28.9B in equity funding (+51.7% from 2019), both from VCs and on the stock markets.

Country comparison

Just to give an idea of the overall performance of South Korea, the country is ahead of Germany’s: respectively 889 vs. 869 scaleups and $28.9B vs. $27.7B in capital raised. South Korean scaleups, slightly less than one-third of those of the UK (889 vs. 2931), attracted nearly half of the capital collected by their British counterparts ($28.9B vs. $64.3B). Accounting for about two-thirds of their French counterparts (889 vs. 1241), South Korean scaleups have raised more funding ($28.9B vs. $21.5B). Compared with a scaleup ecosystem like the UAE, Korea generated 4.6 times more scaleups (889 vs.195) and raised 6.7 times more capital ($28.9B vs. $4.3B).

“Despite the difficult circumstances, the Korean startup ecosystem has been growing steadily, even showing impressive growth in some sectors – commented Dong Ki Lee, Executive Managing Director, Innovation & Growth Group, KITA – These numbers are truly hopeful and encouraging. This trend is likely to continue, providing further momentum to the growth of e-commerce and logistics, as well as of social media and entertainment services.”

Making its way in the “Matrix”

The achievements of South Korea are indeed encouraging even if we look at the Scaleup Matrix, developed by Mind the Bridge to give an immediate picture of how each country performs: in South Korea the scaleup density ratio, that considers the population of a country and the presence of scaleups there, is equal to 1.7 scaleups every 100K inhabitants; the scaleup investing ratio, that compares the capital invested to scaleups to the GDP, is 1.3% of the national GDP. By crossing these 2 parameters, we plot South Korea in the top right quadrant of the Matrix, where we find ecosystems that overperform the EU average.

Compared to 2020, the Korean position in the Matrix in 2021 is improving significantly.

Certainly, South Korean scaleups are thriving in terms of funding activity, another hint to the novelty of the local scaleup scene. Since the beginning of 2020, 42% of Korean scaleups raised funding to fuel their growth, 1 out of 10 (12%) during the first quarter of 2021. A total of 3 companies attracted more than $1B in funding (“Super Scalers”), while 26 scaleups raised more than $100M (“Scalers”).

VC, IPO

In South Korea the vast majority of the capital ($20.3B, 70% of total) comes from Venture Capital – including private funds, corporates and public-supported equity funding vehicles (such as the TIPS program).
The IPO channel is becoming increasingly relevant as a viable option for scaleups to raise growth capital: 71 scaleups raised $8.6B (30% of the total funding) from the stock markets of which $6.9B comes from two big IPOs. The country raised about x2 times of IPO funding with respect to Europe (15.8%) and UK (15%) and x17 times more than MENA region (1.7%).
732 (36%) VC rounds have been participated by Corporates – either through their CVC arms or directly (off-balance investments) – contributing to the $9.6B (47.3%) of total VC capital injected into the ecosystem. 181 (8.8%) VC rounds have witnessed the participation of publicly supported VC funds contributing about $1B (4.9%) of the total VC capital.
1124 (55.2%) rounds were led by VC only, contributing to the $9.7B (47.8%) of the total.
More than 50% of the VC investments flowing into the country come from foreign investors: Japan (22%), US (16.7%) China (8.9%) and other countries.

Markets

It is not surprising that South Korea is labeled as the country of Digital Entertainment.
According to the Report, 156 South Korean scaleups in the field of Digital Media and Gaming raised a total of $6.4B (22% of total), of which $3.1B raised by Netmarble. Business and Productivity Software follow with 83 scaleups ($1B raised). Fourth place for Fintech with 69 scaleups ($1.7B) while Healthtech industry ranks fifth (58 scaleups, $0.7B). E-commerce, Retail & Shopping industry with 66 scaleups issixth but ranks first in terms of capital raised ($10.1B raised, 35% of the total).

Hubs

A total of 724 scaleups (81% of the total) are headquartered in the capital city of Seoul, attracting $24.4B (84% of the total funding made available to Korean scaleups). The second-largest Korean tech cluster is Seongnam, part of the Seoul metropolitan area, hosting 84 scaleups able to raise $2.5B. Close to the capital, the city of Daejeon ranks 3rd in the ranking with 17 scaleups and $0.2B raised.

Innovation Outpost in Korea

South Korea is becoming increasingly attractive as a global innovation hub, with several large companies establishing a physical innovation presence in the Asian country (3 out of 4 outposts have been set up in the last decade).
The research identified 52 global players with a stable innovation presence in South Korea. Namely, they have since established 59 – currently active – innovation outposts, either in a lean form (Corporate Innovation Labs, Antennas, or CVC offices) or more structured types as Research and Development facilities. The R&D Center remains the most frequent type of innovation outpost in South Korea, counting 27 outposts, about half of which pertaining to the most represented industries.
According to the Report, those innovation outposts are estimated to employ around 3000-4000 corporate executives. Most of the innovation outposts tracked (29, about 50% of total) are organized in small teams of less than 10 people.
One third are from the US (17), likely as a result of the historical ties between the two countries. Europeans play a significant role with 10 German companies and 8 French ones, whilst the presence of Asia-Pacific corporates is still not dominant, though increasing (4 from Japan, 2 from China and one from Taiwan). Groups and companies from other European countries play a relatively marginal role.

IT & Software companies have the most significant footprint in the ecosystem (15% of total), followed by Global Telcos, Biotech, Life Sciences & Pharma and Chemicals. It is worth noting that the strategic relevance of the beauty, cosmetics, and skincare industry in the South Korean market has contributed to attracting several global players in this cross-sectorial  eld, including major groups e.g. J&J, Beiersdorf, Shiseido, Estée Lauder, and L’Oreal.