South Korea’s startup formation is shrinking overall, but beneath the headline decline a structural shift is taking shape—one that is steadily tilting the country’s entrepreneurial landscape toward technology-driven sectors.
Data released by the Ministry of SMEs and Startups show that 1.14 million new businesses were established in 2025, down 4.0% from a year earlier and marking the fifth consecutive annual decline. The prolonged downturn underscores persistent weakness in traditional industries even as newer sectors gain traction.
The divergence is increasingly stark. Startups in finance and insurance surged 25.9% last year, while information and communications ventures rose 17.5%. Professional, scientific and technical services also posted steady growth, reflecting rising demand for digital infrastructure, data analytics and artificial intelligence–linked capabilities.
By contrast, more cyclical and legacy sectors are contracting sharply. New business formation in electricity, gas and steam fell nearly 30%, while hospitality and food services declined 11.8% amid softer consumer demand and intensifying competition. Real-estate startups dropped 9.1%, weighed down by a cooling property market and weaker construction activity.
The imbalance suggests more than a cyclical slowdown. It points to a reallocation of entrepreneurial capital and talent away from traditional industries toward sectors perceived as more scalable and resilient in a digital economy.
Technology-based startups now account for a record share of new businesses, approaching one-fifth of total formations. Much of that growth is concentrated in companies leveraging artificial intelligence and software-driven services, areas where barriers to entry are lower and global scalability is higher.
Still, the broader decline in startup activity raises questions about the depth of the transition. Fewer overall new businesses could signal tightening financial conditions, rising operating costs and a more cautious risk environment—factors that may ultimately constrain even high-growth sectors.
Demographic trends add another layer of complexity. While startup formation fell across all age groups, the decline was less pronounced among older entrepreneurs, suggesting that necessity-driven or experience-based ventures may be providing a partial counterbalance to the broader slowdown.
For policymakers, the challenge is increasingly twofold: managing the contraction in traditional industries while sustaining momentum in emerging ones. The risk is not simply fewer startups, but a widening gap between sectors that are expanding rapidly and those that are steadily losing ground.
For now, South Korea’s startup landscape tells a story of transition rather than retreat—one in which the decline of old-economy businesses is being offset, but not fully replaced, by the rise of a more technology-centered entrepreneurial base.
