In 2022 the Korean scaleup economy continued on a sustainable growth trajectory, that is typical of an increasingly mature innovation ecosystem, and Q1 2023 made no exception. According to the data collected by Mind the Bridge with the support of KITA and Crunchbase included in the “Tech Scaleup South Korea Report 2023”, South Korea appears to be on track to establish itself as a regional and global AI tech leader, due to the high density of AI scaleups, structured government support, adequate programs to foster local talent, and availability of dedicated data infrastructures.

Scaleup Population and Funding

As a matter of fact, the country has increased its scaleup population by 24% versus 2022, now hosting 1,506 units equal to almost 3 scaleups for every 100K inhabitants. On the funding side, these companies were able to raise $55.8B in total (+16% vs 2022). With these figures, South Korea is at the level of Germany (1,732 scaleups and $66B raised) and France (2,258  and $54B), outperforming Spain (867 and $17B) and Italy (557  and $7B) and narrowing the gap with the UK (4,575 and $135B) and Israel (2,921 and $107B). 

The country also hosts 8 Super Scalers (tech companies able to raise over a billion dollar, same number as Israel) and 66 Scalers (scaleups raising over $100M).

About 2% of the country’s GDP fuels the local innovation ecosystem. 

“Our data confirms the impression you get when you come to the country. South Korean startup ecosystem is growing at warp speed. And is about to drive the technology revolution, particularly on the AI front. Korean scaleups take only 3 years from inception to cross the $1M funding milestone, one third less than in Europe”, commented Alberto Onetti, Chairman of Mind the Bridge.

The growth path 

After the Acceleration Phase between 2014 and 2016, reporting a significant number of new scaleups and capital raised, South Korea went through the Scaleup phase from 2017 to 2020, with increasing numbers on both the sides, to finally reach the Outlier Phase in 2021 – with 231 new scaleups and almost $22B invested – and now enter the Maturity phase. Q1 2023 data hints at a stable growth trajectory in terms of funding (50 new scaleups and $9.5B are expected by the end of the year).

Geography and Financial drivers

The capital city Seoul hosts 1,157 scaleups (77% of total), which attracted $39.6B (71% of the total capital). Other relevant hubs are Seongnam (151 scaleups, $12.5B raised), Daejeon (39, $0.6B), the southern port city of Busan (29, $0.2B), and Incheon (23, $0.3B). 53 scaleups have relocated their headquarters to the US, with 60% of them choosing Silicon Valley as their destination.

Domestic investors contribute 49% of the total venture capital funding. Among the foreign investors we find Japan (18%), US (15%) and China (6%).

Government plays a notable role in supporting the local scaleup economy since public institutions participated in rounds accounting for 16% of the total capital.

On the other side, corporates participated in 52% of the financing rounds.

Presence of MNCs’ innovation outposts 

“South Korea has become an increasingly attractive hotspot for global corporate venturing. A total of 71 multinationals from 15 countries and 3 continents have recognized the potential of South Korea’s scaleups and the local tech talent pool and established a dedicated innovation presence there”, Alberto Onetti, Chairman of Mind the Bridge, ended.

South Korea hosts in total 82 corporate innovation outposts up to date – namely 48 R&D Centers, 16 Innovation Labs, 10 Innovation Antenna and 8 CVC Offices – and it is increasingly becoming a target hub for lean innovation presences. The majority of those are concentrated in the capital city of Seoul – the de facto Korean open innovation landing platform.

PHILJAE PARK, Director of KITA, said, “It is very encouraging that multinational companies from the United States and other countries are competitively increasing their outposts to secure promising advanced technologies in Korea. Considering this trend, KITA will continue to expand its Fortune 500 Connect and Overseas Test Bed programs to support Korean companies’ overseas expansion.”

A dense and thriving AI scaleup ecosystem supported by the Government

As of 2023, the Digital Media vertical still dominates the Korean scaleup landscape, with 140 scaleups that cumulatively raised $3.3B. Ecommerce. Retail & Shopping follow with 132 scaleups, able to raise $12.3B in total. Healthtech ranks third, now accounting for 125 scaleups and $1.5B in funding. Fintech and Business & Productivity Software follow.

Anyway, all these verticals have a common denominator: AI.
Not a big surprise since the country ranked 10th in the world in the Government Artificial Intelligence Readiness Index as early as 2021. As of Q1 2023, the Report has identified 376 scaleups (25% of the total) able to raise $12.5B that are contributing to advancements in AI deep technologies, ranging from big data models to computer vision, natural language processing, and automation.

“When compared to other global innovation ecosystems, the Korean AI scaleup scene is densely populated. One out of four Korean scaleups develops AI technologies”, added Max Brigonzi, Head of Data and Research at Mind the Bridge, “with a specific focus on Healthtech and Life Sciences and Manufacturing”. 

A key role is definitely played by the South Korean government, committed to position the country as a global leader in digital innovation and support the AI transition through: 

  • Strategy: by identifying 6 major innovative digital technologies to focus R&D investments: AI, AI semiconductors, 5G and 6G communication, quantum computing, metaverse, and cybersecurity.
  • Data infrastructure, quality and accessibility: by creating a “data dam” to collect data, standardize data processing, and disseminate AI data across industries.
  • Policy Environment and Regulation: by providing a dedicated roadmap to adapt current laws and regulations to the “AI Revolution”.
  • Workforce training and education: by nurturing young local students with the goal to cultivate one million digital talents
  • Dedicated R&D: by allocating $800M in R&D over the next 5 years to foster its domestic AI hardware industry 
  • Local Ecosystems: by enabling dedicated clusters, supporting private investors, and Investing directly into AI-based informatization projects.