We take a look at two areas that the local Venture Capital (VC) industry will be paying particular attention to in 2018.
2017 has been a big year for our local VC landscape. The second quarter, in particular, witnessed USD 725.3 million in funding. This figure was boosted considerably by the gaming industry, with locally based Internet platform company Sea Ltd.’s USD 550 million funding round in May this year.
The subset of the sector can be defined as one that leverages technology based on tangible engineering innovation or scientific advances and discoveries. Simply put, it refers to innovation that is brought about by unique, differentiated, protected or hard to reproduce developments. An example of a deep tech startups is one that rides on its proprietary mathematical algorithms to carry out data analytics.
2017 saw this area achieve considerable momentum, partly through the announcement of several government initiatives to propel the industry forward. July saw SPRING Singapore rally interest through seeking co-investment partners for its USD $72.8 million venture capital fund. Set up by its investment arm Spring Seeds Capital, the initiative was set up predominantly to assist companies looking for assistance in an area that is typically mired by high barriers to entry and longer (up to three years) commercialisation periods.
The arena seems to be picking up speed, seen by SGInnovate’s echoing of SPRING’s initiatives at the end of November, announcing an initiative to further strengthen Singapore’s deep-tech start-up ecosystem in 2018. The government-owned innovation platform will contribute up to SGD 100,000 in a pre-seed startup and SGD 100,000 to SGD 1 million in a seed startup. In series A startups, it will contribute in excess of SGD 1 million. Priority will be given to startups that specialise in the areas of Artificial Intelligence, blockchain and medtech.
Initial Coin Offerings
The Cryptocurrency arena is hardly one that needs introduction, both local and international publications being constantly engulfed with stories on digital currencies over the last few years.
Although blockchain technology has been around for a while and would fall under the abovementioned area of deep tech, Initial Coin Offerings (ICOs) have become a popular means of raising funds in recent times. They essentially involve the accrual of crypocurrencies, allowing investors ownership of digital tokens that may or may not be tied to a product or service being rolled-out.
Although VCs do not traditionally participate in ICO funding rounds, they have been known to invest in companies pre-ICO in exchange for equity share. Reasons for this revolve around the fact that fund raising through these means have been knows to come with their own set of risks – if for no other reason than the industry being relatively new, with our local regulator still allowing activities to take their course, within measure.
That being said, the landscape looks to be changing rapidly, and for good reason. Investors (and VCs) are more and more cognisant of the fact that ICOs have seen returns on investments that have reached many-fold in recent times. 2018 will probably see more VCs start their own cryptocurrency funds and investments pouring into these firms as seen earlier this year with U.S based Boost VC. More VCs may also look to ICOs as a means for their existing portfolio companies to raise further funds at specific stages of their growth. The fact that both China and South Korea have placed bans on ICOs will further strengthen Singapore as a regional base moving forward.
With our country’s medium-term goal to make us a global fintech hub, it’s clear that VC funding will only increase through 2018, strengthening the startup scene considerably. While deep tech will continue to be a main driver for advancements moving forward, the world of cryptocurrencies and ICOs in particular can hardly be ignored, one that the VC sector will begin to pay more and more attention to during the course of the next year.