Investment trends and how S’pore startups can prepare for them

At the Asia Tech x Singapore 2022 event held yesterday (June 1), a particular keynote discussed regional investment trends and what this means for startups in this landscape.

The panel – comprised of venture capitalists as well as executives from A*STAR and SMRT Corporation Ltd – gave their take on the tech and investment space in Singapore.

It’s a relatively poignant time for such an event, as many expect a market correction for tech stocks, global instability is on the rise, and to top it off, Sequoia Capital recently released a note on the need for startups to cut costs and wait out tough times ahead – these topics were all highly rated by panelists.

The days of high valuations are over

As the bear market returns, venture capitalists are no longer willing to simply burn through cash and allow companies to raise capital at high valuations without question.

Michael Lints, Partner at Golden Gate Ventures / Image Credit: Screenshot by Vulcan Post

Michael Lints, partner at Golden Gate Ventures, observed that investors are more cautious and that the narratives and mindsets of venture capitalists have shifted from “growth at all costs” to finding the “path to profitability”. .

Concretely, what startups can expect is that they will have to tighten their belts.

Michelle Ng, head of environment, social and governance (ESG) at Quest Ventures, agrees with Michael, suggesting that at this stage, startups cannot expect valuations to be higher. as generous as they were before.

We’re looking at a decent three to five times valuation (for startups that raise funds in subsequent rounds). If you raise to a very high valuation at the start, you have to be careful how you raise in the next round.

– Michelle Ng, ESG Lead at Quest Ventures

She also advised founders to be prudent with their expenses and to reduce operational costs as much as possible.

Considering social impacts for an advantage

Although companies are indeed created for profit, this does not mean that profit is the only thing that matters to investors and companies.

Several panelists urged startups to better consider the ESG aspects of their businesses and suggested that this could provide more incentive for investors to fund these startups.

In particular, panelists identified social impacts as needing the most attention – climate technology and environmental impacts are often well considered, while social and human impacts are overlooked.

Tony Heng, head of business operations at SMRT, pointed out that medical technology startups require special attention.

All companies must score points on their ESG… I think the emphasis is on the environment and on the race for carbon neutrality, but I think the social part is not sufficiently targeted. I think if startups are able to focus on these areas, it will give them an opportunity against those rushing towards sustainability in government.

– Tony Heng, Head of Business Operations, SMRT

On this point, one audience member wondered about the trade-offs between profits and ESG objectives, and the extent to which venture capitalists like Quest Ventures might consider the importance of ESG.

The answer was that profitability and sustainability are not mutually exclusive and that any business that wants to succeed must also be sustainable.

Michelle Ng, ESG Lead at Quest Ventures
Michelle Ng, ESG Manager at Quest Ventures / Image credit: Screenshot by Vulcan Post

If you look at the long term, they (profitability and sustainability) actually converge, although in the short term you (the companies) may be trying to cut some profits to deal with some impacts. But if you look at the long term, it will make sense that the business will be profitable in the next 50 to 100 years.

– Michelle Ng, ESG Lead at Quest Ventures

Singapore is important, but there are bigger fish in the ocean

Although Singapore is a hub for innovation and startups, it is far from the only one and startups in the region have also attracted considerable attention for themselves.

Panelists cited Indonesia as a key competitor and noted that while the bulk of funds are in Singapore and Indonesia for many venture capitalists in Southeast Asia, there are other emerging countries. where startups are starting to appear.

capital invested in Vietnamese startups
Capital invested in Vietnamese startups / Source of data and image: Cento

Vietnam, in particular, is also a relative newcomer to the startup scene and is attracting capital from Japan and Korea. In fact, the amount of funding for Vietnamese startups has increased 40 times over the past few years, from 40 million in 2017 to 2.1 billion in 2021.

Panelists also noted differences between startups from different countries, identifying Singaporean startups as often staying local, while Indonesian startups often start locally and then expand into the region.

While Vietnamese startups have yet to make it, panelists were optimistic about the future of Vietnam’s startup scene.

Singapore has held a position of economic dominance in the region for the past few decades, but as panelists reveal, that may soon be coming to an end.

In the short term, this could mean lower valuations for startups and greater difficulty in surviving or doing business. But in the long term, it could mean a less pronounced competitive advantage, or even economic decline.

However, there is still hope. Panelists also noted that there are still areas of ESG focus that aren’t getting enough attention, and startups would do well to address those concerns.

Ultimately, Singapore has an advantage in terms of the maturity of our ecosystem, but we must not rest on our laurels, lest we ignore future challengers to our pre-eminent position.

Featured image credit: Asia Tech x Singapore / Screenshot by Vulcan Post