Investor interest in deep-tech is slowly picking up in South Asia, despite challenges

(Clockwise from top left) Venkat Vallabhaneni, Managing Partner, Inflexor Ventures; Kiran Mysore, Principal, UTEC, Japan; and Deepshikha Monga, Editor, DealStreetAsia

Investor interest in the nascent deep-tech space — or companies creating a tough-to-replicate, complex, and scientific solution for a problem — is slowly picking up in South Asia.

Science-led innovations from R&D labs of corporations or universities are pushing the boundaries of what is possible and spinning out life sciences, physical sciences companies.

Then, there is also the engineering-led innovation where there is a syndication of medical technology combined with machine learning and embedded technology.

“We see both types of companies coming up in Southeast Asia and India,” said Kiran Mysore, principal at the University of Tokyo Edge Capital Partners (UTEC) during a panel titled ‘The evolving deep-tech landscape in South and Southeast Asia: Challenges and Opportunities’ at the Asia PE-VC Summit 2021 organised by DealStreetAsia.

UTEC recently hit the first close of its fifth global deep-tech fund at $275 million and is targeting to invest more heavily in Southeast Asia. So far, it has invested in Singapore-based deep tech firms like SWAT Mobility, Immunoscape, OPALai and Tricog. Its portfolio in India includes Bugworks Research and the firm is also an LP in Blume Ventures Fund III.

The firm’s initial cheque sizes are typically $1-4 million and then it follows on to up to $15 million. “We get into a company early on and support it throughout its journey, and a large-sized fund helps in that as well,” said Mysore.

The deep-tech sector enjoys favourable government policies, particularly in Singapore. For one, Singaporean deep-tech startups use the regulatory landscape in Singapore to figure out a product and then scale globally in Japan, the US, and other markets, said Mysore.

Investors like UTEC help startups collaborate with Japanese academia or Japanese corporations, either in their local markets or in Japan, which is one of the largest markets alongside the US and China. This could be facilitating collaborative R&D between startups in India and Southeast Asia with Japanese researchers.

Challenges

One of the challenges that Singapore-based deep-tech startups face is that the addressable market in the city-state is small.

“If you look at new, highly innovative models, they need to go outside India, and Southeast Asia to the developed countries,” said India-based Inflexor Ventures’ Venkat Vallabhaneni, who was speaking at the same panel.

Inflexor Ventures recently closed its technology fund at $81 million to back B2B/enterprise startups leveraging deep-tech, technology IP, and innovation. Inflexor has so far invested in Steradian Semiconductors, AR-based edtech firm PlayShifu; Vitra.ai, an AI-ML-based content translation platform, and Kale Logistics, an AI- and blockchain-enabled logistics tech company.

Investors are witnessing a gap from lab to market in South and Southeast Asia. “The US has been doing it well and it’s easy to take the IP [intellectual property] out of the university and spin it into a company. But this is not the case in South Asia,” said Mysore. “Both India and Singapore are improving in this aspect, but it is still not standardised.”

Finding the right talent is also a problem that plagues the sector, especially with the complexities that come with deep-tech. “In the early stage, it is very important to find complementary skills. Some of them come from academia or somewhere else. It takes more than technology to make a company successful. Finding these complementary skills is a bit of a challenge for some of these founders,” said Vallabhaneni.

To tide through this, early-stage grants are being offered to entrepreneurs to get started with their product building or commercialisation. For one, UTEC has launched the UFP-UTEC Founders Program where they invest $100,000-1 million into seed-stage startups for science-based companies to help them get from lab to pre-market.

Governments are also pushing deep tech innovations. For example, Singapore’s Temasek Holdings had set up a deep science investment arm and had recently invested in synthetic biotech startup Allozymes. Deep tech incubators and accelerators have also partnered Enterprise Singapore through the Innovation and Enterprise Fellowship Programme (IFP).

Taking more companies public

Investors are witnessing the emergence of more IPOs in the region and looking to take more companies from “IP to IPO”.

“Several of the LPs are interested in broad rounds for strategic reasons. It works really well for us as well. As we are taking the company public… we need long term institutional investors, not the so-called tourist investors,” explained Mysore.

There has been an appetite from global corporations to invest in deep-tech startups. “In India, for example, we see some of the family offices coming up. In Southeast Asia, big corporates including Japanese corporations are investing,” added Mysore.

It helps that governments are making it easier for IPO companies to operate across the borders. “Big tech companies already face such operational issues, so for deep tech startups, these issues will be even more difficult. The least we can do is to make sure the operational aspects become more like on autopilot, rather than becoming a barrier,” he added.

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.