Nation’s startups a top draw in South-East Asia

SINGAPORE: In a year marked by geopolitical tensions and macroeconomic headwinds, Singapore’s startup 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% of the region’s total deal volume.

This was up from 56% 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% to 410, with deal value plummeting 49% to US$4.32bil during the same period.

Tan Kaixin, general manager of EnterpriseSG’s investment arm Seeds Capital, noted that the startup 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.

“This is as startups 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 startups valued at over US$1bil.

But there are currently at least 10 tech companies in Singapore valued at more than US$500mil after their last funding round.

These include eCommerce platform ShopBack, cross-border payments company Thunes and eCommerce 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$50mil in June; record losses incurred by Asian eCommerce 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 startup founders 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 startup 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 startups to hire foreign talent compared with a multinational company.

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

Nathaniel Phua, chief executive and co-founder of agritech startup 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% this year, adding: “Financial sustainability may become challenging for brick-and-mortar startups like Ento due to the rising operating costs.”

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

She said the talent market for startups 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 startups are generally optimising costs because the funding environment has been difficult.”

On rising costs, 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.

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

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

He added: “Startups may opt for collaboration with foreign offices or set up representative offices instead of splashing out resources for a full business expansion.

“Fundamentally, startups facing headwinds will have to review their business models and strategies.”

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

The strong interest in eCommerce 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$292mil.

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

Looking ahead to 2024, investors are eyeing new opportunities in areas like artificial intelligence, quantum technologies and environmental sustainability. — The Straits Times/ANN