Korea’s funding bonanza could be cut short this year (INFOGRAPHIC)

South Korea didn’t grab as many startup headlines as the much bigger markets of India or China last year, but don’t underestimate the rapid growth of its startup scene. Since 2012, the public and private sectors have been making concerted efforts to build up the local tech ecosystem, which has lured the likes of Google Campus and 500 Startups to set up base in capital Seoul, while Japan’s SoftBank weighed into the country’s biggest deal of 2015.

Disclosed funding in startups of all sizes has grown by a respectable 145 percent, according to Tech in Asia’s database. Despite many of the local venture capital firms starting from scratch within the past few years, Korea already has the third-biggest funding ecosystem in Asia, behind China and India, thanks mostly to overseas investors eyeing the local red ocean.

Korean tech is not just about gaming anymore. Now there’s an app for everything from flower deliveries to home cleaning, while Yello Mobile and the company behind KakaoTalk are emerging as acquisition machines.

“Overall, you are seeing the greatest level of optimism for innovation that has never been seen in the local market,” says Jai Choi, a founding partner at Silicon Valley’s Tekton Ventures. “Cultural mindsets are finally changing and accepting the so-called creative economy.”

“This term is not just propaganda, but starting to become a reality,” Jai adds. “It will take time to truly build out, but all signs are there to hit that next meaningful inflection point of progress.”

Funding magnets of 2015

Startups attracted over US$1.7 billion in disclosed funding last year, according to Tech in Asia’s database. But local investors agree that this number vastly underestimates the actual transactions, due to difficulties in collecting data such as language barriers and the lack of a local deal reporting system.

Nonetheless, there is a lot we can gather from our data, which encompasses most of the year’s big-check deals.

Online-to-offline services (O2O) hogged the funding headlines of 2015, as mobile-savvy Koreans continued to embrace ecommerce, transport and deliveries, lifestyle (food, furniture, and fashion), and search and discovery apps. Ecommerce was the clear money magnet of the year, as bargain e-retailer Coupang shot to unicorn status with a US$1 billion investment from SoftBank to boost its delivery infrastructure.

Even without that record deal, it was the biggest-winning vertical as other players earned big checks, like Coupang’s local rival WeMakePrice, which secured a US$85 million round from local VC NXC.

But while valuations are increasing, local investors are still acutely aware of the lack of local exit opportunities.

Other O2O services for ride sharing (Socar), apartment hunting (Zig Bang), and food delivery (Yogiyo) reached our top 10 funding deals list for the second straight year, each earning US$35 million to US$65 million in 2015. Another big hitter from 2014, the maker of food delivery app Baedal Minjok, did not seal a new funding round last year. But with transactions growing 58 percent on-year in 2015, it has shown no signs of slowing and could be another headline maker in the coming year.

The rise of content-creating startups Treasure Hunter and Makeus made “multi-channel networks” (MCN) a big industry buzzword. The startups grabbed US$13.2 million and US$17.4 million, respectively, according to our database.

Then there was startups-in-a-startup Yello Mobile, which got a US$4 billion valuation from follow-on investor Formation 8 in a year-end US$47 million deal to fund its acquisition spree and aspirations for total digital marketing domination in Asia.

Maturing startup industry

A rough year ahead