The next few years are going to see more venture capital (VC) firms in Southeast Asia channel funds into deep tech, according to prominent industry players.
Deep tech encompasses areas such as artificial intelligence (AI), internet of things (IoT), sensors, drones and robots, nanotechnology, biotechnology and augmented/virtual reality. Deep tech startups boast of patented technology that is difficult to replicate.
Silicon Valley VC firm 500 Startups’ Southeast Asia arm is looking at investing more into deep tech companies in the next four years, after investing in e-commerce platforms and marketplaces in the last four years, according to Khailee Ng, Managing Partner at 500 Startups.
Khailee was speaking at the recently held Crouching Panda, Hidden Tapir conference in Kuala Lumpur, organised by Gobi Partners, GS Shop and Mavcap.
“We don’t want to concentrate our investors’ money in any one space but we are seeing the writing on the wall – there are more and more efficiencies that take place using AI to get certain things done. Things have become cheaper to execute,” he added.
He, however, stressed that 500 Startups is strictly not looking for a blockchain company or ICO-funded firms. Instead, the VC firm is looking for a company that will solve real challenges for real customers.
500 Startups also expects more funds from China, South Korea, and the Middle East to look into Southeast Asia’s deep tech space for co-investments or to take positions in the coming years.
Southeast Asia is yet to witness big investments in deep tech but initiatives targeting this space have been launched such as by SGInnovate and Entrepreneur First.
When asked about what sectors will receive the most inflow of early-stage investments in Southeast Asia, Wavemaker Partners managing partner Paul Santos said he is putting his money on B2B and deep tech.
Wavemaker Partners, an early stage cross-border VC headquartered in Los Angeles and Singapore, closed its second Southeast Asia-focused vehicle at $66 million in October 2017, exceeding its target of $50 million by 32 per cent.
While Santos admits that competition among VCs is heating up in Southeast Asia, there is always room for investments, especially as fund managers raise bigger funds for the region.
“Fund managers raise money to deploy. The bigger the fund raised, the more pressure there is to deploy. When there’s that pressure building up, especially as the later stage happens, the hotter deals become more competitive,” he said.
In Southeast Asia, where seed rounds are structured for a $1-million investment, the typical checks are about $250,000, which means there is automatic sharing among VCs, Santos added.
“I have not seen seed guys take million-dollar rounds by themselves,” Santos said.
For his part, Khailee said the competition in Series A onwards in Southeast Asia has already intensified, partly because of the graduation of seed VCs going to Series A. He also cited the entry of new names in the market as one of the factors behind intensifying competition.
“A lot of capital is coming in… and I think that will drag prices up and that’s where Southeast Asia is becoming very competitive,” he said.
Oh-hyung Kwon, Principal at FuturePlay, a South Korean accelerator and early-stage investor, said that VCs in the region need to fend off competition not only from their peers but also from ICOs.
Founded in 2014, FuturePlay specialises in deep tech startups, having invested in 55 deep tech companies mainly in South Korea. The fund is looking at expanding its presence in Southeast Asia, Kwon said.