South Korea’s startup M&A winter has deepened as once major investors like conglomerates are prioritizing restructuring over expansion, choking capital flows and threatening the sustainability of the country’s startup ecosystem.
Mergers and acquisitions made up 38.0% of venture capital’s startup exits in the first quarter of this year, down 4.7 percentage points from the same period of last year, according to data from the Korea Venture Capital Association on Thursday.
M&As accounted for 56.5% in 2022 and 50.2% in 2023, underscoring a steady decline and fueling concerns that 2025 could mark a five-year low for startup dealmaking.
The slump is largely due to a liquidity squeeze in the country’s conglomerates, which were once major spenders on innovative technologies and promising startups.
Amid growing concerns about the economy, they have shifted their focus from expansion to cost-cutting, asset streamlining and business restructuring.
According to the Korea M&A Exchange (KMX), major Korean conglomerates spent 8.58 trillion won ($6.2 billion) on M&As in 2024, down 39.3% from the prior year. Over the same period, M&A deals dropped to 50 from 87.
“Strategic M&As were previously active, fueled by ambitions for market leadership and expansion, but now many investors have less confidence in startups’ upside potential,” said an official from the venture capital industry.
“Growing market uncertainty has turned investors increasingly cautious,” the official added.
(Graphics by Daeun Lee) Korea’s major platform companies – Naver Corp. and Kakao Corp. – have also become shy about M&As after years of aggressive expansion through deals until 2021, which drew increasing regulatory and public scrutiny.
In 2021, Kakao controlled 194 affiliates, a fivefold increase from five years earlier. The number has since dropped to 104 this year, following the disposal of non-core assets and aggressive restructuring.
FLEDGLING STARTUP M&A MARKET
The worsening M&A freeze is now putting Korea’s overall startup ecosystem at risk, narrowing exit options for venture capital investors.
For the startup ecosystem to remain healthy, venture capital firms need to recover their investments as funds mature and recycle that capital into new startups. As exit opportunities shrink, so do prospects for fresh investments.
But some experts blame Korea’s still-nascent startup M&A market as a key factor behind the downturn, saying the country has yet to cultivate a mature ecosystem for startup acquisitions.
(Graphics by Daeun Lee) “Korean startup investment is largely driven by financial investors chasing short-term returns, with little infrastructure or appeal to attract strategic buyers like large conglomerates or mid-sized firms,” said Yoo Hyo-sang, chief of Korea's Unicorn Business and Economic Research Institute.
“Even policymakers appear to be lacking a full grasp of the ecosystem’s structural challenges.”
According to Seoul-based venture capital and startup tracker The VC, the number of startup closures jumped to 170 in 2024 from 144 a year ago, marking the third straight year of increases after 126 closures in 2022 and 104 in 2021.
With the potential breakdown of the virtuous cycle of investment, growth, M&As and reinvestment, startup founders face dwindling exit options, triggering legal disputes with investors, missed salary payments and internal conflicts.
The VC industry is urging the government to overhaul the secondary fund market and revitalize trading of existing shares to keep the startup investment cycle alive.
Write to Jeong-Hoon An at Ajh6321@hankyung.com Sookyung Seo edited this article.
