Amid an eight year-low venture capital (VC) deal activity in Asia last year, investors are increasingly directing capital towards young startups to avoid the valuation discrepancies plaguing later stages, a report by Enterprise Singapore (EnterpriseSG) finds.
The report notes that Singapore, across the Asean 6 nations including, Malaysia, Thailand, Indonesia, Vietnam and the Philippines — maintained its lead in equity funding last year, with 73.3% of deal value per market attributed to the Republic, worth US$6.1 billion (S$8.5 billion).
However, this total funding volume in Singapore is a 44.7% drop from the previous year, while the Asean 6 saw deal values plummet by more than 52.9%.
Early-stage funding accounted for 94% of deal volume and nearly 50% of total deal value, up from 90% and 44% respectively the year before. This is in contrast with global trends, which saw early-stage deals being the hardest hit with a 40% decline year-on-year, according to Crunchbase.
Particularly in Singapore, early-stage deals garnered a larger share of the total funding last year, accounting for 94.1% of the deal volume and 49.8% of the deal value, up from 89.9% and 43.7%, respectively, in 2022.
But these early-stage startups were not totally immune from the funding crunch, the report finds, as deal volume for those based in Singapore fell 18.2% y-o-y to 464, while deal value dropped by 37% to US$3.04 billion.
Despite the fall in total deal value, the median values for early-stage deals witnessed minimal impact from the ongoing funding winter, with seed and Series B median dropping by 7.4% and 4.8% in 2023, while Series A saw no change, according to the report.
Meanwhile, later stage funding stages across the Asean 6 has seen a slowdown as investors are more selective and prioritise companies with robust business fundamentals and valuations reflective of the new market reality, says the report.
Accordingly, Singapore clocked 29 late-stage deals in 2023, down by more than half from 64 deals in 2022 and 63 in 2021. Late-stage deals were down by 50.8% y-o-y to US$3.06 billion, and late stage funding share of the overall deal value in Singapore fell to 50.2% in 2023 from 56.3% in the previous year.
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Amid all this, EnterpriseSG’s report highlights the rise of funding in deep tech startups, which recorded a 31.4% y-o-y increase in deep tech deals to 159 in 2023, a recovery from a 38.9% drop in the preceding year.
But deal values continued their downward trajectory, decreasing by 18.4% to US$1.53 billion in 2023.
Silicon Box achieved the maximum funding among deep tech startups, amassing US$139 million as part of a US$200 million Series B round in December.
Renewable energy firm InterContinental Energy secured the second largest funding with a US$115 million Series B. Overall, Singapore saw 10 deep tech startups graduate to Series B rounds, while 24 moved to Series A.
Speaking at the launch of the report on Apr 2, EnterpriseSG’s chairman Lee Chuan Teck says that the Republic will continue to work to attract more deep tech funding in the coming years.
Lee acknowledges that such startups have a long gestation period, and requires what he describes as “patient capital”. But he admits that there is “a lot more room to grow”.
