Dissecting the deep tech startup funding space in Singapore

DEEP tech in Singapore has grown in the past 5 years, supported by more interest from investors and corporates. The Covid-19 pandemic has accelerated developments in health sciences as well.

Where will the ecosystem go from here? The Business Times speaks to SEEDS Capital chairman Ted Tan, AngelCentral partner Huang Shao-Ning, and MassMutual Ventures partner Ryan Collins to find out.

BT: How would you sum up what 2021 has been like for the deep tech ecosystem?

Tan: Singapore's startup investment activity has regained momentum, with about 355 deals amounting to S$5.3 billion in the first half of 2021, compared to 317 deals worth over S$3.4 billion in the same period last year. On the deep tech front, investor interests have been growing, particularly in the areas of sustainability, health and biomedical sciences.

Collins: The pandemic has of course impacted lots of companies in different ways over the past 18 months - for example, some of those in digital health struggled to engage with healthcare systems as resources were focused on managing Covid-19 and had less capacity for running validation studies or working on non-urgent initiatives.

Huang: On the manpower front, especially when it comes to specific technical skill sets that have limited local supply, founders really have to be resourceful in their sourcing and be willing to pay a high price. Even with regard to high-skilled foreign talents who are already in Singapore on the startups' payrolls, the manpower policies in these 2 years have actually caused some to lose their key talents.

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BT: What is your investment approach when looking at deep tech startups?

Collins: Deep tech generally takes longer to build, validate and gain adoption, but can completely transform markets or create new ones. For that reason we are happier to invest in pre-revenue companies, with more emphasis on technology and team diligence.

As for red flags, John Brandon wrote of Elizabeth Holmes and Theranos that people were "fooled by the lack of clear descriptions, the lofty wordsmithing, the imprecise scientific information, the elegant delivery". I have that stuck on my computer - it's a great guide to spotting when things might not be all they seem. The people who really know their stuff don't feel the need to bamboozle with jargon, self-aggrandise, or exaggerate credentials.

Tan: Our approach is to seek co-investment partners with specific industry know-how or investment track records to leverage their expertise.

The bulk of our investment decisions lies in the founder and the team. My rationale is simple: If everything goes wrong, but the founder is competent, committed and honest, the team can respond to competition and market volatility, change course and succeed.

Huang: The approach is always to find a technology that has a viable business use case, and there must be a large enough demand and market potential for that use and, ideally, adjacent application cases. However, it takes both time and effort and many trials to convince the existing industry decision-makers to even conduct a trial with a startup to test out the technology.

BT: What about Singapore's deep tech ecosystem frustrates you?

Tan: An increasingly common challenge we hear from our founders is the ability to hire the right talent quickly and within their means. This has been exacerbated by the pandemic as the movement of talent across borders is impacted. To groom talent, our ecosystem players must work together.

Huang: Most deep tech applications usually target large enterprises as potential customers. But large organisations usually have long and complicated internal approval systems. It takes a special breed or a "hair-on-fire" problem for the senior executives to agree to spending resources to do a trial with a startup. This can't be easily resolved as I don't think many senior vice-presidents would have "Support an external innovative project" in their performance targets.

Collins: I would like to see more entrepreneurs building deep tech companies. There just aren't that many yet in the region, certainly relative to other sectors. Entrepreneurs, on the other hand, are also frustrated by the lack of patient capital that is prepared to back these kinds of companies. More investor interest, especially at the early stages, would really help to create a sustainable ecosystem.

BT: We've seen completed and upcoming exits from a number of consumer-facing startups in Singapore and South-east Asia, but not so much from deep tech companies. When do you think the turning point might come, and how can we pave the way?

Huang: Looking across the regional markets, I believe Singapore has a good market share of deep tech startups. Most of the regional ecosystems are still focused on business-to-consumer, logistics, e-commerce and software-as-a-service startups.

If more of our local large enterprises could make a higher risk-taking effort to collaborate with small, new tech ventures, I believe many win-wins will come along.

Collins: A few big, successful, standout companies (and exits) really put a sector on the map and validate that such market opportunities exist. Investor dollars usually follow the next wave in larger amounts. It's not easy to shortcut that process but early stage capital, nurturing local talent and welcoming that from overseas are all important ingredients.

Tan: Compared to consumer-facing startups, Singapore's deep tech ecosystem has only become more vibrant in the last 3-5 years. Ten years ago, SEEDS Capital had a handful of co-investment partners, all focusing on consumer and information and communications technology (ICT) startups. Today, we work with almost 50 deep tech venture capital partners to invest into startups in advanced manufacturing, health and biomedical sciences, sustainability, and agri-food tech.

We are confident that with strong investors selecting the right startups and value-adding to them in their journey, we will see more exits in the deep tech space.

For more of our SWITCH 2021 coverage, go to bt.sg/switch21