[StartupRecipe] How Korea’s AI Strategy Will Shape Its Startup Scene

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How Korea’s AI Strategy Will Shape Its Startup Scene

The government of South Korea announced a new economic growth strategy that puts a strong emphasis on artificial intelligence. The new policy, called the Grand AI Transformation, is designed to use AI as a key driver to overcome challenges such as population decline and slowing economic growth. Through a series of initiatives focused on the startup and venture capital ecosystem, the government hopes to boost the nation’s potential growth rate to 3% and produce quick results, with many key projects launching in the second half of the year.
Starting later this year, the government will launch 30 flagship projects for the AI transformation. Among these, seven corporate-focused physical AI projects will be implemented immediately. These projects target key areas like AI robots, autonomous vehicles, ships, home appliances, drones, smart factories, and semiconductors. Support will go beyond simple R&D funding and include a comprehensive package of deregulation, market expansion, and financial assistance.

In addition to the AI projects, the plan includes 15 other ultra-innovative economy projects spanning a wide range of fields. These include SiC power semiconductors, LNG cargo holds, superconductors, graphene, smart agriculture, fisheries, ultra-high-resolution satellites, K-bio, K-content, K-beauty, and K-food. This broad scope is expected to expand the possibilities for startups looking to enter these industries.

The government plans to create a new National Growth Fund (tentative name) of over KRW 100 trillion. The plan is to combine the Advanced Strategic Industry Fund (over KRW 50 trillion) with private capital (over KRW 50 trillion from pension funds, private finance, and public offerings). This new fund will make long-term equity investments in strategic industries like AI, energy infrastructure, and related technology and venture companies. The government will also expand the Mothership Fund’s capital contribution to a record high.

To further revitalize the venture capital market, the proportion of early-stage and scale-up investments in AI will increase from 20% to 30%. To incentivize more investment, the plan will introduce joint capital contributions and priority loss provisions to share the risk for LPs (Limited Partners).

The government also aims to make it easier for investors to participate in venture funds. It will allow venture investment with retirement pensions, establish a dedicated venture fund within the pension investment pool, and introduce personal participation-type BDCs (Business Development Companies). To revitalize the secondary market, the government is also considering a special provision that recognizes the acquisition of old shares as a primary investment purpose (up to 20% of the total commitment).

In addition to new funding, the government will reform regulations that have hampered startup growth. This includes reviewing and restructuring regulations across key sectors and strengthening the requirement for regulatory sandbox-approved projects to be codified into law. The plan specifically aims to shorten the process for starting pilot projects and expanding regulatory exemptions for new industries like autonomous vehicles, AI-powered ships, and non-face-to-face medical services.

The government has set an ambitious goal to nurture 50 unicorns through the “Next Unicorn Project.” This program will provide focused, stage-by-stage support to AI and deep-tech startups to strategically cultivate a new group of leading companies that will drive the AI transformation.

To address the concentration of resources in the Seoul metropolitan area, the government is also pursuing measures to expand regional growth funds, extend corporate and income tax reductions, and reorganize sub-funds of regional venture funds into a Regional Growth Fund. These efforts are expected to improve investment accessibility for startups in other regions.