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Deep tech significantly underinvested in SE Asia: 500 Startups’ Vishal Harnal

Vishal Harnal, Partner, 500 Startups

This interview is part of a co-branded series with Collective Works. 500 Startups is based at Collective Works Capital Tower, 168 Robinson Road, Singapore.

With four funds operating in Southeast Asia that have invested in over 200 companies, 500 Startups is one of the most active investors in the region. While its bets on companies such as Grab, Carousell, Bukalapak, Revolution Precrafted and Kudo (acquired by Grab) have paid off, the venture capital firm believes the best is yet to come.

“We believe that the successes so far are just a prologue to what is going to take place in the region,” says 500 Startups partner Vishal Harnal.

500 Startups is particularly bullish on the emerging deep technology sector in the region and says it is set to increase its investments in this area. Harnal said deep tech companies across verticals such as biomedical, communications, space and robotics represented the most underrated investment opportunity in Southeast Asia.

In an interview with this portal, he also highlighted the growing sophistication of the region’s investment ecosystem. “The funding gaps that historically existed at the Series A and B stages are also getting plugged as larger and more sophisticated pools of capital have started investing further downstream,” he said.

Edited excerpts:

What trend or upcoming technology are you most excited about in SE Asia?

One area that we are excited about (and believe is significantly underinvested in the region) is deep technology – companies where there is real technological innovation and intellectual property. We are seeing a lot of phenomenal companies in this sector coming from Singapore like our portfolio companies Gilmour Space Technologies (3D-printed rocket fuels and rocket engines) and Transcelestial Technologies (terrestrial and satellite-based laser communications).

There are a lot of extremely talented post-doctoral researchers in Singapore that are starting to find ways to commercialise their research and build globally competitive companies. We plan on investing significantly in this space.

What challenges do you think could hinder the potential of this region?

One of the big challenges companies in the region face is talent sourcing and retention. This is a common hurdle that emerging ecosystems face. Fortunately, with the continued and visible success of companies in the region like Grab and Carousell, talented programmers and business people from around the world are slowly heading to the region to build the ecosystem further.

We’re also seeing this problem tackled by our own portfolio companies. Next Academy, a coding and digital marketing school based in Kuala Lumpur, helps create a healthy talent pipeline for the startup ecosystem by providing short courses making students or graduates startup-ready for their next undertaking. Other portfolio companies that are helping to solve this setback with HRtech solutions include QLC, Glints, UrbanHire, Talkpush and Rumarocket.

Southeast Asia has a long way to go to become an innovation hotbed. Your thoughts?

Our view is that Southeast Asia is already an innovation hotbed.

While technological innovation is catching up rapidly, the most successful Southeast Asian startups we see so far have innovated in their execution. They take an intimate understanding of local cultures and pain points, adapt an existing technology or platform that has worked in some other market, and combine the two with phenomenal execution to succeed.

One excellent example of this is Grab, which in an extremely short period of time was able to cement itself as the undisputably dominant ride-hailing platform in Southeast Asia and the region’s most valuable unicorn. Although it is now at the forefront of technological innovation as well, the roots of the company were in understanding a local pain-point (matching taxis with customers), and providing a solution that was built with the local consumer at the forefront.

How do you view Southeast Asia – a homogeneous market or several smaller markets?

We think the answer is more nuanced. One one hand, we see Southeast Asia as the story of cities as a bulk of the population is concentrated in those areas. Singapore, Kuala Lumpur, Jakarta, Bangkok and Saigon have far more in common than realised in terms of the needs and desires of the people and businesses.

On the other hand, the culture of the countries and the way business is done can vary significantly between the countries.

We keep both the similarities and differences in mind when making investments, especially since most of the companies we invest in have regional, if not global, ambitions.

What is the one piece of advice you’d offer to budding entrepreneurs in the region?

There has never been a better time in the history of the region to become an entrepreneur. Seize this opportunity and start something that will serve the close to 700 million people of Southeast Asia.

What is the most overrated/ hyped area or sector in this region?

The “fintech” and blockchain sectors as well as saturated fields like horizontal e-commerce.

What is the most underrated opportunity?

Deep-tech companies across multiple verticals like biomedical, communications, space, robotics.

What role could governments or regulators play in speeding up growth in SE Asia?

Governments and regulators should continue to legislate and evolve policies that promote and sustain entrepreneurship within and between their countries. For example, making it easier for companies to hire talent from other parts of the world makes a big difference. Simplifying regulations relating to investment (especially foreign investment) is essential as the capital base investing in the region is very global, even at the early stages.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.