Singapore’s plan to allocate a further S$300 million($215.5 million) to a deep tech co-investment scheme is a direct injection into a typically fund-starved segment of the startup ecosystem, industry players said.
“The deep tech top-up comes at an important time when the current batch of deep tech startups are mostly struggling to raise funding,” said Quest Ventures through a spokesperson. Quest focuses on early-stage digital commerce investments in China and Southeast Asia, and its mandate covers deep tech.
On Tuesday, Singapore Deputy Prime Minister and Finance Minister Heng Swee Keat unveiled plans to allocate a further S$300 million to the Startup SG Equity co-investment scheme, which is run by SEEDS Capital and SGInnovate.
In November, SEEDS Capital chairman Ted Tan told The Business Times that the firm, which is the investment arm of Singapore business development agency Enterprise Singapore (ESG), has catalysed close to S$140 million of early-stage funding across 100 deals in the past three years. Of those funds, S$66.7 million came SEEDS and the remaining S$70.8 million from co-investors.
Deep tech venture investments in Singapore are growing but still form a sliver of early-stage capital raises. Startups focused on research-based technology raised S$305.2 million in the first nine months of 2019, 25 per cent more than the year-ago period, according to ESG data.
But that investment amount accounted for just 4 per cent of all venture deals over the same period.
SGInnovate’s head of venture investing, Tong Hsien-Hui, previously told The Business Times that deep tech startups in the country faced a Series B funding gap.
One of the biggest challenges for deep tech startups is that they often face significant capital needs even when they have a long and uncertain road to commercial viability.
500 Startups partner Vishal Harnal told DealStreetAsia: “Deep tech startups take a longer time to hit their stride so having an additional funding cushion will enable more companies to be successful.”
Beyond the lack of funding, Singapore’s supply of deep tech targets is also facing a growth problem. In a recent report, Singapore government-owned deep tech development firm SGInnovate noted that the percentage of startups that were considered deep tech had hovered around 6 per cent between 2004 and 2015, while the share of infocomm technology startups jumped to just over 50 per cent from 38 per cent.
The Quest spokesperson said that while access to capital was important for deep tech startups in Singapore, the bigger challenge lies in growing the ecosystem as a whole.
“Despite the resources spent, Singapore as an ecosystem is not as well-known as other cities such as Silicon Valley, Israel or Japan as deep tech hubs,” Quest said. “It is time to relook at the deep tech sector and work with different parties to push this forward. Especially with the cornerstone role, the Singapore government has put on deep tech in its future economy plans.”
Kelvin Lee, co-founder and CEO of private investment platform Fundnel, said it was also important to consider the challenges that investors face in putting money into deep tech.
“Deep tech is a sector that plays to Singapore’s strength in the region,” he said. “However, reducing upfront investment risk is only part of the equation. The long holding period these startups require, prior to an exit event, remains a crucial push factor. Addressing investors’ liquidity concerns will bring forth a stronger impetus to stimulate investment activity.”
Still, some help is better than none. 500 Startups’ Harnal, whose firm specialises in seed-stage capital, said government support for deep tech goes a long way.
“I’ve been investing in deep tech startups for many years now and will continue to invest,” Harnal said. “Government funding grants such as the Startup SG Equity scheme have been instrumental in catalysing the deep tech ecosystem here and will now help it mature further.”
