In recent years, deep-tech, or technology based on significant scientific or engineering advances, has been a key focus for the Singaporean government. The country has poured billions of dollars into building up its deep-tech ecosystem, which includes blockchain and AI, and the results are starting to show.
In a report by DealStreet Asia, easier access to funding in Singapore and mobility restrictions in neighbouring countries has led to a surge in deep-tech startups raising capital in the city-state.
In the first nine months of 2021, deep-tech startups in Singapore raised $861 million across 131 deals, up 44% from the same period last year. These are significant developments, given that over the last ten years, the Southeast Asian startup ecosystem has not witnessed deep-tech startups grow beyond US$100 million.
Daiki Kumamoto, Global Fund Leader and Growth Manager, Real Tech Holdings, Japan, attributes the lacklustre performance of deep-tech to a lack of investors with deep-tech investment knowledge and a lack of prototyping and manufacturing capability to support the growth of startups. According to him, there is a real opportunity to unlock unique research themes emerging in universities and research institutes across Southeast Asia.
Real Tech is a Tokyo-based Venture capital firm working with deep-tech startups in Southeast Asia. The company provides growth-stage companies with the resources they need to scale, including access to its global network of investors and corporate partners.
Meanwhile, in a more recent development, SAP announced the creation of SAP Labs Singapore, a digital innovation facility that will lead product development, promote local digital talent, and support ecosystem and community engagement.
One of the goals of SAP Laboratories Singapore will be to engage with businesses to understand how innovation and new technologies are changing their capabilities to withstand the challenges of the digital economy.
However, the lack of investment in deep-tech is not without basis. According to the Singapore Deep-Tech Alliance (SDTA), the path to scale for companies to reach market-ready maturity takes longer and requires significant cash and patient risk capital.
“Given that deep-tech startups are associated with high risks, the key barrier to their collaborations with corporates is risk aversion. Building deep-tech startups is dauntingly hard,” according to Clara Chen, co-founding managing partner at SDTA.
SDTA acknowledges how deep-tech can play a crucial role in tackling some of the world’s most pressing problems, including climate change and food security. The alliance is working on bridging the gap between deep-tech startups and corporates by creating a platform for collaboration and co-creation.
The platform will allow startups to access the resources and expertise of larger corporates while providing corporates with a way to tap into the innovation and creativity of startups. The SDTA seeks to take deep-tech startups from ideation to commercialisation with a nine-month venture builder.
All of these initiatives and more are indicative of a scene that is poised for growth in Singapore. Teradata highlights that while IT decision-makers have been re-thinking their IT investments, they are expected to prioritise emerging technologies, including deep-tech.
Furthermore, according to a study on partnerships between deep-tech startups and massive corporations, 71% of the firms investigated are considering expanding the weight of deep-tech start-ups in their corporate venturing portfolios.
“Yet there is a lack of a sophisticated and connected deep-tech investing community mainly attributed to the long gestation period of this type of start-up, the inherent complexity and risk-related, and often a lack of technology evaluation capability. This is why, for decades, governments have frequently complemented—or even covered—this financial gap between research and investment funds,” the study notes.
The study proposes several recommendations for corporates looking to invest in deep-tech startups, including the need for an unbiased evaluation of the startup’s technology, a corporate innovation architecture that takes into consideration the particular risks of each corporate venturing mechanism, and the development of a deep-tech sandbox to minimise risk.