Deep tech startups struggle to raise funds despite SE Asian venture capital rush

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Southeast Asia is awash with venture money. But if there is capital to be deployed, deep tech startups are seeing little of it. 

According to DealStreetAsia data, Southeast Asia’s venture capital (VC) firms raised $1.44 billion in the first half of 2019. That’s more than double the amount raised over the same time last year at $625 million. If this fundraising pace persists, 2019 will soon overtake last year’s total of $2.12 billion.

The term “deep tech” is troublesome and ambiguous in itself. Short for “deep technology”, deep tech refers to breakthrough advances in science, engineering, and innovation – all of which span across a wide range of sectors from food to cybersecurity, natural language processing (NPL) to space technology. 

In Singapore, a first-tier Asian city where significant volumes of the region’s deep tech are developed, VCs find themselves having to sift through heaps of jargon to suss out the very best venture picks. The problem these days is that what constitutes “breakthrough” has been whittled down to a fussy application or AI robot that brings little or no value to the lives of everyday consumers. 

“Everyone is incorporating (AI and machine learning) already, so when founders come to me and say – “we’re an AI startup” – what does that even mean?” said Hustle Fund managing partner Shiyan Koh. “What is your unique data set? Where would you think your unique merit is? How does it help you solve your problem more efficiently?” 

Meanwhile, the real deep tech startups struggle

When Sandhya Sriram and Ka Yi Ling first introduced Shiok Meats’ cell-based shrimp to Southeast Asian investors, they were met with all-round enthusiasm.

Unlike Impossible Foods or Beyond Meats which produces plant-based meat, Shiok uses stem cell technology to extract and re-grow shrimp meat in a lab for human consumption. 

Shrimp is one of the dirtiest industries in the world, both ethically and literally. About 65% of the world’s shrimp consumption comes from Southeast Asia, most of which are farmed by conglomerates and family-owned businesses who take advantage of shrimps as bottom feeders to grow them in sewage water. 

When these shrimps are ready to be fished and exported, large vats of antibiotics are poured over them, followed by water before they’re shipped across the world for human consumption. 

Shiok Meats co-founders Sandhya Sriram and Ka Yi Ling

In 2018, Sriram and Ling, both former stem cell scientists at Singapore’s distinguished A*STAR institute, hung their lab coats to set up Shiok Meats. Their cell-based Shiok shrimp is an early-stage product which it proudly declares to be clean, hygienic and ethical – contrary to most shrimps sold in supermarkets today. 

When the time came for fundraising though, Sriram, CEO of Shiok Meats, quickly discovered a glaring lack of regional VCs who genuinely understood the pros and cons of investing in a deep tech company like theirs. Many of them simply hadn’t encountered a company like theirs before. 

“One trend I’ve noticed is that a lot of the bigger Asian VCs do bigger rounds, but they don’t do the earlier stage rounds. They come in at Series A when the company is slightly de-risked,” said Sriram.

Sriram also attributed this to a degree of “risk aversion” among Asian investors – a little ironic considering that the role of venture capital was to back high-risk projects in the first place.

“In Silicon Valley, there are investors who are willing to take a risk. There are investors there investing in multiple companies, hoping that at least one will do well that will make up for all the other failures,” said Sriram.

“(But) so far I’ve found that a lot of Asian investors invest in only two or three companies. They want all two or three to do well – (but) that is never going to happen. A startup’s ratio of success is 1:9!”

Sriram and Ling eventually found themselves seeking funds abroad for its seed round – a stage where startups tend to source capital locally. In April, Shiok Meat raised $4.6 million from a range of global investors including New York-based Big Idea Ventures, Silicon Valley’s Y Combinator, and Monde Nissin’s CEO Henry Soesanto. 

Shiok Meats is one of very few lab meat startups in Asia and globally. In Asia, cell-based meat companies include Japan-based IntegriCulture (foie gras) and Hong Kong’s Avant Meats (fish maw & sea cucumber).

The majority of lab meat companies are still from the West: Israel’s Future Meat Technologies and Super Meat (chicken and red meats); US-based Memphis Meats (beef); Finless Foods (seafood) and Blunalu (seafood); and Mosa Meats from the Netherlands (burger patties).

Appetite for SE Asian deep tech startups still lacking

Deep tech VC funds are also few and far between in Southeast Asia. (See table below)

According to DealStreetAsia’s data, there are about $1.55 billion worth of active SE Asian VC funds dedicated to deep tech. That’s just slightly more than the amount of new capital raised in 1H 2019 alone – indicating that a significant majority of capital is still deployed into other sectors like ride-hailing, e-commerce and delivery services.

This pattern mirrors the number of deep tech startups regionally as well. 

In Singapore, where a significant number of Southeast Asia’s deep tech startups are based, the percentage of deep tech startups has continued to hover around 5-6% for the last 15 years, lagging the growth of other sectors. (See chart below.)

While the number of registered patents has risen, most of them are filed by foreign companies with discoveries that are commercialised out of Singapore. During 2011-2016, a total of 7171 patents were granted by the US patent and trademark office to Singapore inventors, up from 943 during the period 1996-2000. 

Pang Heng Soon, Head of Venture Building at SGInnovate said: “While we do have strong and consistent investments from the public sector in areas like AI, medtech, quantum computing, agrifood tech, we would like to see a better rate of investments from the VC community. We hope to see them equipped to start taking more risks to jump in as early and as often as possible.”

But taking a calculated risk is quite different from taking a blind one. In Southeast Asia, the majority of VCs are still “generalist” investors who write cheques across a spectrum of sectors from fintech to logistics. 

The very first niche-focused funds like blockchain-focused Lunex Ventures and B2B-focused Tin Men Capital only began popping across the region in the last one year. “Generalist VCs” meanwhile, will need to grow wider networks if they want to play in a new deep tech field, or else build globally competitive in-house expert teams who can advise on the latest, cutting edge technology.

“Investors like anybody else have their egos. It’s hard to admit when you don’t necessarily know about things,” said Paul Burmester, Head of Innovation & Partnerships at Singtel Innov8, a $250 million corporate venture fund.

He continued: “I’ve always believed – forget the money for a second – what else can you do as a fundamental innovator in terms of mentoring, guiding and introducing portfolio companies and business units? That’s critical. If you don’t understand what you’re investing in, how can you really help them?” 

Vertex Holdings CEO Chua Kee Lock acknowledged that there may be a certain level of risk aversion towards deep tech startups, but added that it’s likely to come from single market rather than regional or global funds.

“This may be a fair comment for single market VC funds in SEA. For Vertex, we are a global VC network of funds. Every opportunity will need to be benchmarked and compared against other similar ideas from Israel, China, India and USA, where Vertex has local presence and team,” said Chua.

The Singapore government continues to play a supporting role for deep tech

Meantime, the lack of risk-on investing among VCs is getting filled up by an unlikely player better known for its bureaucracy – the Singapore Government. 

Recognised for its economic foresight and 50-year urban city plans, the Singapore Government has similarly ploughed large sums of capital into areas it deems to be under-invested. According to SGInnovate, the nation has invested $43.3 billion (S$60 billion) in hard science and engineering since 1995. 

It has built tertiary institutions and world-class research labs to attract top talent, as well as entrepreneurial networks, financial grants and agencies (ie: Enterprise SG, SGInnovate) to bring some of these breakthrough innovations through to commercialisation. 

Its hands-on approach has not gone unnoticed by deep tech startups.

Rohit Jha, CEO and co-founder of Transcelestial, a Singapore-based spacetech company, said that government-backed agencies like Enterprise SG have shown themselves willing to take early bets.

Rohit Jha, CEO of Transcelestial.

“Singapore’s government programs and funding have traditionally been focused on funding the TRL1-3 stages – or the really early stage conceptual R&D ideas. From what I’ve seen, I think these agencies are not only enthusiastic but surprisingly more risk-taking in the deep tech area than VC funds,” said Jha.

But the hurdles for deep tech are still high for many VCs at the moment. 

Deep tech startups across the board – whether in medicine, space or bioengineering – simply do not monetise as quickly as B2C e-commerce or ride-hailing platforms. Gestation periods are also longer. Collaborations with organisations like hospitals or manufacturing companies can take up to three years to jointly iron out kinks. 

The question then becomes about VCs chase for returns. How urgently do VCs need to prove returns to LPs if they’ve already built a sound track-record? How should they go about balancing their risk ratios if they were to add capacity for higher risk investments? How many of these can they afford when there are plenty of smaller and quicker bets to be made in Southeast Asia?

Expand Table

VC fundFund sizeFund statusSector
Singtel Innov8$250m, 12 active investmentsFrom balance sheetCybersecurity
ST Engineering Ventures$150mFrom balance sheetCybersecurity, AI, IoT
Wavemaker Partners$100mFirst close, $60mSeed investments in B2B, deeptech
GBCI Ventures$100m ClosedSmart cities, blockchain
CleanGrid Partners$60mRaisingClean energy
Vickers Ventures Fund VI$500mRaising in 2018Deep tech, impact investments
Genesia Ventures$50mRaising in 2018AI, robots, drones, low-orbit satellites
Tin Men Capital$100mFirst close, $20.8m Smart cities, security, enterprise productivity, transport, logistics, omnichannel retail solutions, travel and tourism
LuneX Ventures$10m RaisingBlockchain, crypto
Trendlines AgriFood Fund$40mFirst close, undisclosed. (Aim to close by end-April)Agrifood
Visvires New Protein Fund I$40m ClosedFood chain, supply systems
Visvires New Protein Fund II$100mTargeting first close in Q3 2019Food chain, supply systems
Lightstone Ventures$50mClosedLife science technologies

Structuring capital for deep tech in Southeast Asia

Southeast Asia is in no shortage of capital. The issue is about the way capital is structured. 

“I don’t think it’s the dollar amount – I think it’s the types of businesses. The Singapore government seems to be driving deep-tech but there isn’t actually that much appetite for deep tech follow-on investing,” said Shiyan Koh, Managing Partner of seed VC, Hustle Fund.

This places seed investors like Hustle Fund in a bit of a fix. If there isn’t any Southeast Asian appetite for deep tech investments in Series A, B and C levels – why would an investor be compelled to invest in deep tech at the seed level at all?

This limits the scope for seed investors to enter new sectors in Southeast Asia – deep tech included. 

“Because capital markets are broader and deeper in Silicon Valley, there’s a wider set of things that you can fund early because you know there are going to be people who are going to fund this later on. But over here, there are certain things that are quite difficult to fund really early because there isn’t any follow-on capital for it,” explained Koh.  

Meantime, Southeast Asia’s deep tech founders will have to work doubly hard to articulate their challenges and opportunities better to investors.

“Founders from deep tech ecosystems like Silicon Valley, Boston, Israel and Japan also do the same for investors there. We (Southeast Asia) definitely have the patient capital and visionary investors in this region – it’s just a matter of leap of faith and understanding,” said Transcelestial’s Jha.  

“But please, please lead the rounds!” Jha pleads. “Leading will make the biggest difference for a deep tech company trying to get off the ground.”


(Note: We will be covering this topic at our upcoming Asia PE-VC Summit 2019 on September 17-18 in Singapore. For our panel discussion on ‘Investing into future unicorns and tapping growth drivers of tomorrow,’ we have brought together Hsien-Hui Tong, Head, Venture Investing, SGInnovate (Moderator); Edith Yeung, Partner, Proof of Capital; Nir Arbel, Operating Partner, Esco Group; Nicko Widjaja, CEO, BRI Ventures; and Jeremy Tan, Co-founder & GP, Tin Men Capital. You can register for the event now.)

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.