Hsien-Hui Tong, Head of Venture Investing, SGInnovate.
Foreign investors are increasingly evincing interest in Singapore’s deep tech startups specialising in artificial intelligence (AI), cleantech and quantum tech, according to SGInnovate’s head of venture investing Hsien-Hui Tong.
Investors from the US, South Korea, Japan and Europe are frequenting the country, displaying greater curiosity and willingness to invest in deep tech companies. Tong, however, noted that the sector only started gaining momentum in the last three years.
“I have certainly started to see more funds coming in from overseas to invest in our deep tech startups,” said Tong. This is even as “experienced overseas investors are also mindful that deep tech startups all over the world need a lot of hand-holding at an early stage and would generally not invest without a strong local partner.”
While Singapore’s deep tech ecosystem is still at a nascent stage when compared to Silicon Valley and Tel Aviv, the Asian city-state has many aspects going in its favour such as strong research institutes, intellectual property (IP) protection, and multiple global MNCs headquartered in the country.
What’s more – Singapore has also been witnessing an influx of private capital facilitated by the government’s efforts to fashion the city-state as a regional financial hub over the last few years.
According to DealStreetAsia’s data, venture capital (VC) firms with an interest in Southeast Asia amassed as much as $2.62 billion in capital commitments in the first seven months of this year, topping 2018’s total of $2.12 billion.
While a significant chunk of this is still being deployed in B2C segments such as ride-hailing and e-commerce, SGInnovate believes this will eventually trickle down into deep tech as well – a high growth area that deserves no less attention on the global stage.
Tong added that while there have been some exits, most of them have been small so the money flowing back into the ecosystem is not as large as it could be.
“If there is one critique I have of some local founders, it is their low perceived threshold of success,” said Tong. “An exit or buyout for $50 million is decent, but its impact on the local ecosystem is quite different from a $1 billion exit. I always try to encourage local founders whose businesses can be huge, to focus on the big numbers and not to be distracted by the smaller buyout offers that come along.”
According to SGInnovate, it has invested over $28.8 million (S$40 million) in more than 60 deep tech startups since its inception in November 2016. The total amount of co-investments that came from the private sector amounts to more than $313 million (S$435 million) so far.
SGInnovate is one of two fund managers under the Startup SG Equity Scheme under Enterprise Singapore, which also manages a fund investing in deep tech startups outside Singapore. Some of its portfolio companies include AIDA Technologies (AI), Taiger (AI), Horizon Quantum Computing (quantum tech), SpeQtral (quantum tech) and Atomionics (quantum tech).
Edited excerpts of the interview with Hsien-Hui Tong, head of venture investing, SGInnovate:
Singapore has invested $60 billion in hard science engineering since 1995. There are also several research institutes here, many of which are globally recognised. Why hasn’t deep tech taken off despite all this investment?
I think the definition of deep tech contributes in part to this perception. Deep tech is ever-evolving and the deep tech of yesterday is the general tech of today. A good example would be the internet that was viewed as deep tech in 1995 but treated as a common platform today. The investment Singapore made in hard sciences in the early days such as semiconductor and materials engineering, biotechnology, etc have helped to attract big corporations to Singapore which, in turn, boosted the quality of research and attracted talent from overseas to complement the engineers and scientists
being trained at our local universities.
What we could have done better might have been to emphasise the translation of this research into not just IP to be leveraged by global MNCs and our GLCs, but also into startups who would further develop the IP into commercialisable businesses that could tackle difficult global challenges.
However, for such startups to flourish requires a strong ecosystem to support them. The examples of Silicon Valley, Israel, etc… have all shown that even with large local markets, an ecosystem that comprises all stakeholders, and that shares common values and objectives, is needed for deep tech startups to grow and expand. This is one of the areas that SGInnovate seeks to address and our activities seek constantly to reinforce the existing deep tech ecosystems so that startups have a platform to engage in meaningful dialogue with regulators, corporates, investors and enablers.
At the same time, deep tech investment has always been a challenge. The basic investment axiom is to invest in what you know. Unfortunately, deep tech is by its nature something that few investors will be familiar with. Furthermore, deep tech often tries to push the boundaries in highly regulated markets such as energy, finance and healthcare. These industries have very established evaluation processes that lead to long time to markets. Even with a working prototype, it still takes a lot of money
just to bring a product to market. With the triple challenge of uncertain technology, long time to market and large funds needed to bring them there, it is not a wonder that few investors are willing to dedicate their focus solely on deep tech companies.
Through our effort in building deep tech ecosystems in specific domains, helping entrepreneurial scientists scope and start their businesses and making selective investments both domestically and where complementary, globally, SGInnovate hopes to be part of a coordinated effort to establish deep tech as a driving force for the Singapore economy in the near future.
2. Singapore’s market isn’t as big or deep as the US or China. Is it realistic at all to think that deep tech startups here can compete at the same level as the markets there?
Deep tech is a global and not local play. While the US and China are admittedly massive markets and investment into research dwarfs whatever Singapore can do, no one here or there is so insular as to believe they have the monopoly of wisdom in this space.
As rightly mentioned in the previous question, Singapore has established some world-class research institutions and institutes of higher learning/universities. As such I am confident that the intellectual property is derived from cutting edge research being done at these institutions will rival anything in any other part of the world.
With such a small local market, startups are immediately forced to think regional and global from day one. Singapore’s strength, however, is in a large number of MNCs who have established regional HQs locally. These HQs enable Singapore to be a regional hub for the flow of ideas and potential partners in regional markets for those startups that truly have global ambitions and a product to match.
Examples such as Razer, Grab, SEA are just some of the later stage startups that leveraged the strengths of the Singapore ecosystem to build mighty global businesses that went public or have the
potential to go public. Some early-stage deep tech startups are following in their footsteps.
Companies like Taiger and AIDA in the AI for fintech space, Biofourmis in the medtech space and Tabsquare in the AI for retail space, are just some of the many startups who have anchored their businesses in Singapore and are now expanding rapidly in the region, US, LATAM and the rest of Asia.
3. Some deep tech founders say that Southeast Asian investors are risk-averse and lack expertise in this field. This has made it difficult for them to fundraise/raise follow-on funding. Do you agree?
While I do not disagree, I think it is an unfair statement to make without understanding how the markets overseas evolved to accommodate investors with a deep tech focus. Silicon Valley did not spring up overnight with investment firms who believed in the deep tech story from day 1. The ecosystem there evolved over time, with the most important factor being the number of deep tech startup founders who exited their companies and then either started new companies or became investors (and very savvy ones at that). At the same time, the mega exits enjoyed by VCs in the deep
tech space encouraged others to come in.
The Israeli ecosystem has also gone through a few evolutions which is why they are perhaps, after the US, one of the more active deep tech startup ecosystems in the world.
Singapore is still in the early stage of our startup evolution. While there have been exits, most of them have been small so money flowing back into the system is not as large as it should ideally be. If there is one critique I have of some local founders, is their low perceived threshold of success. An exit or buyout for $50M is decent, but its impact on the local ecosystem and signaling to investors is quite different from a $1B exit. I always try to encourage local founders whose businesses can be huge, to focus on the big numbers and not to be distracted by the smaller buyout offers that come along.
4. Do you see more overseas investors (ie: US, China, Israel) filling in where Southeast Asian investors aren’t in terms of deep tech investments? How far has this increased over the years? What sectors are they most interested in and why?
I have certainly started to see more funds coming in from overseas to invest in our deep tech startups. There are certain reasons for this.
Firstly, the focus on building more deep tech startups has really only gained momentum in the last three years. You could say that SGInnovate was set up with the primary purpose to seed this movement and to start with the building of local ecosystems.
Secondly, the building of these ecosystems in the areas of AI, medtech, blockchain and autonomous vehicles, helped to connect the Singapore ecosystem with other global ones and there was greater awareness of what Singapore was doing in the deep tech startup space, from both startups and investors.
Thirdly, while local institutional funds were interested to invest, they had raised their funds based on very specific guidelines and lifetimes, and could only deploy a small amount into these new deep tech areas, which carried higher risk and had longer exit timelines.
That said, experienced overseas investors are also mindful that deep tech startups all over the world need a lot of handholding at an early stage and would generally not invest without a strong local partner. When SGInnovate invested in Horizon Quantum Computing earlier this year, the round was syndicated with strong early-stage investors from the US (Data Collective VC) and Japan (Abies), but we led the round as the investors wanted a local partner with a track record of helping companies
Deep tech areas where I have seen the most interest is in AI, cleantech and quantum
technology, with most investments coming from the US, South Korea, Japan and Europe.
5. What new types of investment schemes is SGInnovate working on to encourage Southeast Asian investors to invest in deep tech?
For clarity, SGInnovate itself does not operate any investment schemes. We seek to be “evangelists” for deep tech investments, to educate and help our ecosystem to understand the opportunities that lie in this region. This is not just confined to investors but also regulators and corporates (who will ultimately be the customers of these startups).
We are one of two fund managers under the Startup SG Equity Scheme, which is administered by Enterprise Singapore, but we also manage a fund that invests in the most promising deep tech startups outside Singapore, in areas that are complementary to what we are doing here.
Since SGInnovate’s inception in November 2017, we have invested more than $28.8 million (S$40 million) into more than 60 deep tech startups. The total amount of co-investments that come from the private sector amount to more than $313 million (S$435 million).
6. Which deep tech sectors is SGInnovate most excited about now, and why?
SGInnovate will continue to take a keen interest in the areas of artificial intelligence (AI), autonomous vehicles (AVs), medtech and quantum technologies. We see these to continue to be growth areas in the next five to 10 years, with companies employing a convergence of some of these technologies as they begin to mature.
AI has been one of the most talked-about technologies for a few years now, with no signs of it slowing down. With AI covering a wide spectrum of innovations, we believe that AI companies focused on specific processes to solve industry pain points would likely be the ones to win big in the market. For instance, one of our portfolio companies, AIDA Technologies, is using machine learning and deep learning to speed up health insurance claims process, looking to help insurance companies control escalating healthcare costs.
For AVs, the reality is that it would take some time for the industry to overcome the technological, infrastructural and ethical challenges before we see true Level Five AVs – the level of autonomous driving that requires no human attention. Thus, we focus on component technologies that can enhance existing sensors, energy storage, navigation and decision support. These innovations can be deployed as part of existing vehicles and infrastructure, giving them an earlier market while the development of a full AV takes place in parallel.
With the rising demand for quality healthcare, MedTech is receiving a lot of attention. However, innovations in this area can be tricky due to complex interactions between regulators, healthcare industry, research community and end-consumers. We believe that products or services that assist and augment the role of medical professionals will see better traction – especially products that include the convergence of AI with medical devices.
Finally, quantum tech has been on our radar for some time now. It has the potential to be a real game-changer and disruptor in a wide range of real-life applications; from superfast data processing and computing, secure communications to highly accurate timing systems and more. Although investments in quantum tech remain at a nascent here, SGInnovate has already invested in three quantum tech startups over the past year – Horizon Quantum Computing, SpeQtral and Atomionics. We have also recently inked an MOU with the Centre for Quantum Technologies, to promote quantum technologies and facilitate the commercialisation of quantum innovations in Singapore.
This article is sponsored by SGInnovate, a government-owned entity focused on building Singapore deep tech ecosystem.
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