Korean Venture Capital Industry Exposed in Funding Winter: Reckless Investments Without Expertise Lead to Self-Inflicted Crisis

17% of domestic VCs reduced to “empty-shell firms”
Exit market blocked, early-stage investment shrinks
Trend-chasing strategies hit systemic limits

As the funding winter continues to grip Korea’s venture capital (VC) market, data show that in the first half of this year, one out of every five VC firms made not a single investment, effectively becoming “empty shells.” With the exit market shrinking and liquidity tightening, both new financing and seed-stage investments have contracted, pushing VCs and the venture ecosystem as a whole into a vicious cycle. Industry voices argue that beyond external factors such as high interest rates and economic stagnation, the structural shortcomings of Korea’s VCs—including lack of expertise and planning capacity—have been the core drivers of the investment vacuum.

Without new investment, clinging only to the survival of existing portfolio firms

According to data from the Korea Venture Capital Association’s DIVA disclosure system on the 26th, a total of 61 VCs recorded zero investment in the first half of this year. This means that 17% of the 355 registered VC firms have effectively become empty shells. Their number has been rising steadily: from 32 in 2022 to 41 in 2023, 43 in 2024, and then a sharp increase in the first half of this year. With high interest rates and a slowing economy, capital is concentrating in large, established VCs with strong track records, while new entrants are being forced into deregistration, liquidation, or exit from the market.

The rise in capital-starved VCs is choking early-stage financing. According to venture investment platform The VC, the number of VC deals in the first half fell 37.6% year-on-year to 445, while the investment volume dropped 26.9% to $16.3 billion. The number of newly funded companies came to 569, well below the five-year average of 858. Early-stage investment contracted sharply, with 338 deals totaling $5.4 billion, down 42.9% and 33.4% respectively. Mid-stage investment also shrank, with deal count and volume down 26.1% and 32%.

Experts point out that with the IPO and M&A exit market blocked, VCs have been reluctant to make new investments, instead clinging to the survival of their existing portfolios, leaving the entire market deteriorating. According to the Korea Exchange, IPO filing applications fell 39.7% year-on-year to 53 in the first half, down from 88 a year earlier. With not only IPOs but also M&As stalled, capital recovery has essentially been cut off. High-profile companies that had been expected to list—such as K-Bank, DN Solutions, and Lotte Global Logistics—have withdrawn their IPOs, fueling a sense of despair across the sector that “there is no longer an exit.”

Bio Sector Hit Hard, New Investment Down 40%

The biotech sector, which relies on large-scale funding, has been dealt a severe blow. Korea’s biopharma market had grown at an average annual pace of 18.4% over the past five years, attracting megadeals and big-ticket VC injections. Recently, however, preclinical-stage firms have repeatedly failed to secure financing, creating a “structural investment cliff” across the industry. With IPOs and follow-on funding shrinking, first-quarter new VC deals in biotech fell 40% year-on-year, and many drug development and healthcare firms could not even clear the bar for tech-special listing.

AI investment is bifurcating. While some generative AI and platform firms are drawing decacorn-level funding, most startups see capital cut off at the pilot stage, forcing business shutdowns. In the first quarter, 38% of VC funds flowed into AI and platforms, but small and mid-sized companies without commercialization capital face existential risk. Fabless and design startups in semiconductors are likewise stalling as funding shortages halt core R&D. Adding to the strain, foreign investors are pulling out, shaking the foundations of the domestic tech ecosystem.

In consumer tech, which accounts for 30% of venture investment, brand launches and distribution expansion have slowed sharply amid recession and capital crunch. While fashion and beauty have held up relatively well, new brands lacking large-scale funding are struggling to build growth momentum. Software, comprising 20% of invested firms, faces workforce cuts and delayed service rollouts. Media, content, gaming, and proptech—sectors critical to hardware and platform innovation—remain stuck in single-digit investment shares, deepening stagnation.

Korean VCs Constrained by Passive Structure and Lack of Strategic Capacity

Industry consensus holds that the investment winter cannot be blamed solely on interest rate hikes or global downturns. The root lies in the chronic deficits of Korea’s VC industry: weak expertise, lack of accountability, and unwillingness to take responsibility. For years, amid the liquidity boom, many VCs indulged in indiscriminate bets without rigorous technical due diligence or business evaluation. Their addiction to “herd investing” and “conglomerate-following strategies” left them unprepared to deploy capital proactively into technology and markets—culminating in today’s funding vacuum.

This aversion to risk gave rise to the refrain that “there are no investable companies.” Yet on closer inspection, the problem lies in VCs’ failure to build planning capacity. The U.S. has already shifted to a “company-building” model rooted in technology: sourcing entrepreneurs, assembling management teams, founding companies, and directly structuring seed funding. Korean VCs, by contrast, remain stuck in a passive model of scouting pre-packaged firms.

Even within the industry, calls for self-criticism are mounting. Many VCs have bet on flashy résumés and trend-driven keywords rather than deeply engaging with startups’ technologies. A shortage of skilled reviewers in fields such as AI, data, and biotech means that risk aversion, conglomerate linkages, and quick exit potential often dominate investment criteria. The result is a distorted system where truly innovative firms with unique business models and technical promise are sidelined, while companies adept at inflating performance figures attract oversized capital.

For example, last year $300 million was pumped into 18 autonomous driving startups, many of which had not even completed technical validation. In the shared e-scooter market, following Olulo’s success, a flood of copycat startups drew massive funding with undifferentiated models, only to collapse en masse. Meanwhile, firms that proved market traction and growth potential were neglected. Beauty and healthcare booking platform LifePick, which secured 100,000 downloads and 14,000 partner stores shortly after launch, could not raise follow-on investment and shuttered within two years.