The Straits Times: S’pore’s start-ups a top draw in region in challenging year; investors eye AI, green tech in 2024


Singapore was the largest venture capital market in South-east Asia in the first nine months of 2023 ST PHOTO: ONG WEE JIN


SINGAPORE - In a year marked by geopolitical tensions and macroeconomic headwinds, Singapore’s start-up ecosystem had a mixed showing, capturing the lion’s share of investments in the region even as it suffered a decline in both deal volume and value.

The Republic was the largest venture capital market in South-east Asia in the first nine months of 2023, with local venture-backed firms accounting for 64 per cent of the region’s total deal volume, up from 56 per cent in the same period in 2022, according to data from Enterprise Singapore (EnterpriseSG) and DealStreetAsia. 

However, while deal volume rebounded to pre-pandemic levels, the transaction count decreased by 21 per cent to 410, with deal value plummeting 49 per cent to US$4.32 billion (S$5.75 billion) during the same period. 

Ms Tan Kaixin, general manager of EnterpriseSG’s investment arm Seeds Capital, noted that the start-up funding climate in Singapore and other South-east Asian countries was muted in 2023 due to the persistent high interest rate environment and a turbulent economic landscape, which drove demand for safer investments.

She said: “Until there is greater certainty of global economic recovery and a trend reversion of interest rate increases, investors are expected to continue keeping their powder dry, intensify scrutiny of deals, and be more cautious in decision-making.

“This may see overall valuations continue to be constrained in the next six to 12 months, as start-ups adjust to the imbalance in demand and supply for venture capital.”

In another sign of the frigid fund-raising climate, 2023 saw no new Singapore-based unicorns, in contrast to 11 achieving unicorn status in 2021 and four in 2022, according to EnterpriseSG and DealStreetAsia. Unicorns are defined as start-ups valued at over $1 billion. 

But there are currently at least 10 tech companies in Singapore valued at more than US$500 million after their last funding round. These include e-commerce platform ShopBack, cross-border payments company Thunes and e-commerce solutions provider SCI Ecommerce. 

Apart from the muted funding, Singapore’s venture-backed environment had a year of ups and downs. Notable setbacks include the sudden collapse of coffee chain Flash Coffee, which raised US$50 million in June; record losses incurred by Asian e-commerce giant Sea, along with the reported winding down of its investment arm; as well as the mass layoffs conducted by ride-hailing giant Grab.

Most start-up founders whom The Straits Times spoke to cited rising costs, a high interest rate environment and manpower issues as some of the obstacles they faced this year.

Dr Ramesh Rajentheran, chief executive and co-founder of Singapore-based health start-up MiyaHealth, said that while the Republic is producing founders who are performing well, sourcing for talent is difficult because the talent pool here is not large enough.

It can also be challenging for start-ups to hire foreign talent as compared with a multinational company. 

Dr Rajentheran added: “The outlook for start-ups is really dependent on whether interest rates stay high and the talent pool constraints remain in place.”

Mr Nathaniel Phua, chief executive and co-founder of agritech start-up Ento Industries, said that sourcing for suitable talent has been difficult, as the environment and agriculture industries are facing a labour shortage. 

He also said that rent at Ento Industries’ headquarters in Tuas has increased by 70 per cent this year, adding: “Financial sustainability may become challenging for brick-and-mortar start-ups like Ento due to the rising operating costs.”

Ms Caecilia Chu, chief executive and co-founder of Singapore-headquartered fintech start-up YouTrip, offered a different perspective on the talent market. 

She said the talent market for start-ups in Singapore loosened up in 2023, and firms here can capitalise on the availability of experienced workers.

“It has not been as tight as the previous two years, as tech companies and start-ups are generally optimising costs because the funding environment has been difficult.” 

On rising costs, Ms Chu said it has been a double-edged sword for YouTrip. Because the firm takes a fee from every transaction recorded on its multi-currency debit card, higher transaction volume translates to higher fee revenue for the company. 

“But the rising cost of living is affecting our employees, while the higher operating cost of doing business is affecting some of the businesses in our small and medium enterprises portfolio,” she added.

Mr Patrick Lim, chief executive of Action Community for Entrepreneurship, said that Singapore’s start-ups may face a difficult 2024 if economic uncertainties remain. 

Market and overseas expansion remain a priority for some start-ups, but they may also choose to save costs. 

He added: “Start-ups may opt for collaboration with foreign offices or set up representative offices instead of splashing out resources for a full business expansion… Fundamentally, start-ups facing headwinds will have to review their business models and strategies.”

Despite the challenges, Singapore’s start-up ecosystem has shown resilience, with areas like e-commerce, fintech, deep tech, as well as health and environment still attracting significant interest from investors. 

The strong interest in e-commerce and fintech over the years meant that despite a fall in deal count and value, the two areas still stand atop the funding table, accounting for half of overall deal value.

Deals by Singapore-headquartered healthtech companies more than doubled to 32 in the first nine months of 2023, with deal value soaring to US$292 million. 

The Republic also saw a 36 per cent year-on-year surge in deep-tech deals to 118, while agritech and foodtech deals ballooned by 24 per cent, with a total of 21 transactions raising a combined US$26 million, according to EnterpriseSG and DealStreetAsia.

Looking ahead to 2024, investors are eyeing new opportunities in areas like artificial intelligence (AI), quantum technologies and environmental sustainability.

Quantum technologies is an area of physics involving the study of sub-atomic particles. One of its applications is quantum computing, which can make complex calculations faster than conventional supercomputers.

Mr Jeremy Au, chief of staff at Monk’s Hill Ventures, noted that investors have significant capital to deploy in 2024 as they have been conservative with their capital deployment in 2023.

He said: “Founders are racing to harness the power of generative AI, and venture capitalists are busy scouting, partnering and investing in start-ups that will successfully localise this technology wave.” 

SGInnovate executive director of investments Tong Hsien-Hui said that breakthroughs in the development of quantum technologies mean that investors should explore opportunities in the sector.

He added that there is a growing acceptance that certain changes in the climate are going to be the new normal. “Technologies or start-ups that seek to address the immediate impact of these issues on people will be of interest to investors as this represents a tangible and visible market.” 

Mr Chua Kee Lock, chief executive of Temasek-backed venture capital firm Vertex Holdings, said that investors will continue to seek out innovative and disruptive technologies and business models in 2024. These include areas like AI, quantum computing and biotechnology, among others.

He added that Singapore is expected to thrive as a key innovation hub in South-east Asia given its established tech ecosystem, broad funding base and comprehensive set of government initiatives that can spur innovation and entrepreneurship.

He said: “While Singapore’s innovation ecosystem has evolved over the years, it remains a healthy and vibrant leading international start-up hub – an attractive one that is expected to draw global investors’ interest for a long time to come.”