Fintech at the forefront of 2022’s Hottest Startups list

Venture Capital firms tell Singapore Business Review why the vertical was the most attractive to investors.

Fintech has proven anew that it is a force to be reckoned with in Singapore’s startup economy by being able to amass approximately $5.40b (US$3.94b) funding in 2021, and dominating the eleventh edition of Singapore Business Review's Hottest Startups List.

In this year's list, the vertical took over eight of the 20 spots, led by Spenmo which secured $45.70m in its latest funding, followed by Syfe ($40.33m), Volopay ($39.59m), Endowus ($35m), CyberHash ($26.96m), Xen Capital ($10.08m), Jenfi ($6.3m), and STACS ($4.85m).

SEE FULL LIST: 20 Hottest Startups of 2022

Capital not only poured into these eight fintech ventures but also into the entire Singapore startup economy as they gathered $11.2b in funding in the first nine months of 2021 alone, which was already double the amount raised for the entire 2020 at $5.5b, according to Enterprise Singapore. 

What makes these startups—and fintech, in general—attractive to investors is that they are pandemic resilient, and they are taking part in the strengthening of the digital commerce ecosystem, according to Quest Ventures’ head of Environmental, Social & Governance and director of Sustainable Impact Accelerator, Michelle Ng.

This attractiveness was clearly reflected in the amount of capital poured into fintech startups in 2021. Data from S&P global showed that fintech startups in Southeast Asia raised  $4.7b, proving that the sector is a force to be reckoned with in the startup economy. 

With continuous innovations in the sector, particularly in the area of blockchain and open banking, analysts believe that fintech’s force will continue to be felt in 2022 and it will remain at the forefront of the startup scene.

“Fintech… will continue to be the leading vertical in terms of capital deployed and startup formation,” Justin Hall, partner at Golden Gate Ventures, told Singapore Business Review, adding that more capital will be poured into Fintech across the board in 2022.

This was echoed by Singtel Innov8’s managing director for Investment in the Asia Pacific, Kum Tho Wan, who said fintech will be a “high growth area” in 2022.

“Regulators in the region appear supportive of innovation in fintech, which is seen as a way to drive financial inclusion and efficiency,” he said.

But fintech-related ventures are not the only ones catching the eyes of investors, those involved in the development of digital reality have also been capturing the interest of investors, Ng added.

These types of startups will also continue to be attractive in the years to come given that Web 3.0 is the “buzz of the time,” according to Accelerating Asia’s Craig Dixon, adding that venture capitals (VCs) are actively exploring or investing in startups involved in this internet revolution.

‘Explosion’ in e-commerce

Web 3.0’s arrival has also pushed Singapore’s visionary minds to create solutions that will level up e-commerce. Eunice Wong, principal at Monk's Hill Ventures, told Singapore Business Review that there was an “explosion of startups dedicated to building the infrastructure and tools to power the rapid growth in online commerce.”

The year 2021 saw a flurry of that with the entry of seven commerce-centred startups into the ranking, namely, Una Brands, Rainforest, Osome, Tinvio, Upmesh, Nektar.ai, and AI Palette.

In 2022, there will be even more startups that will aim to solve both consumer and enterprise pain points with technology on the back of a stronger internet economy, Wan said.

There is even the possibility of social media overtaking traditional retail this year, claimed Wong, as social commerce and live-selling will continue to boom. "People increasingly spend more time on product discovery and purchasing on social media platforms.” She added that the e-commerce industry will continue to benefit from COVID-19 tailwinds as consumers and businesses learn to live in the new normal.

As e-commerce goes side by side with logistics, startups involved in the latter also saw tremendous growth in terms of funding, Hall and Ng said. 

Digital health boom

The new normal also led to a swirl of activities in the digital health industry, both Wong and Ng observed, as VCs invested in startups that “focused on health and well-being,” both physical and mental in 2021.

True enough, this year’s list also saw the entry of health tech startups such as Neuroglee.

COVID’s emergence also gave a spotlight to startups focusing on research and development like Germany-based BioNTech, which, together with Pfizer, developed a vaccine for the coronavirus.

This spotlight, however, would be unlikely in Southeast Asia, Hall said. “Majority of biotech investments will be made in more mature markets.”

Solving real-world problems: sustainability

Apart from being tech-focused, the common ground that successful startups last year had was founders “who are deeply passionate about the problems they are solving for; who are tackling huge pain points and have figured out a repeatable and scalable way to sell their products and services,” Wong said.

Quest Ventures’ Ng had a similar observation and so she urged founders who are just starting to raise funds for their startup to “focus on solving real-world problems and value creation for your users and stakeholders.”

One particular problem that startups are aiming to address is sustainability, according to Ng and Dixon, with the latter saying that this focus will grow fast in the years to come given that consumers are being more “conscientious.”

Ng, for her part, said Environment, Social, and Governance (ESG) must be on top of startups’ strategy and operations, as VCs also look into this aspect.

In support of the green movement in the ecosystem, the government has also created programs to support cleantech startups or those who are trying to improve environmental sustainability.

According to the Global Startup Ecosystem Report 2021, the cleantech sector in Singapore is supported by various incubators and accelerator programs such as Temasek’s Sustaintech Xcelerator which was launched to identify and nurture climate innovators.

2021: A breakthrough

“A breakthrough”—this was how Ng described the year 2021 for Singapore’s startup ecosystem; and looking at the Global Startup Ecosystem Report 2021, the Lion City has indeed advanced in the scene.

The report by Global Entrepreneurship Network and research firm Startup Genome showed that Singapore has surpassed the global averages for total early-stage funding (US$2b vs US$548m), ecosystem value (US$$22.5b vs US$13.68b), median seed round (US$600,000 vs US$480,000), and median series A round (US$4.8m vs US$3m).

Singapore also ranked 17th in the top startup ecosystem in the world, and fifth in Asia, according to the report.

“Most ASEAN governments are very supportive of startups, some having even established government ministries to develop their local ecosystems. Singapore has been the most aggressive in this respect,” the report said.

Government support has also been cited by the report as amongst two major reasons why entrepreneurs should build their startups in Singapore alongside “talent development and attraction.”

The fintech sector, for example, received a $125m support package from the Monetary Authority of Singapore (MAS) as the agency aimed to sustain the “growth of financial institutions and fintech firms amidst COVID-19.”

“MAS has awarded licenses for digital banks, which include awardees in the startup space: Sea Group and Grab-Singtel consortium,” the report added.

2022: A step further

The “breakthrough” that startups had in 2021 is poised to continue in 2022, with big winners, such as fintech, e-commerce, and healthcare, expected to still perform well this year, investors said.

Healthcare, in particular, will continue to enjoy the attention of both investors and the government as “decentralised healthcare and personalised medicine take the strain off the healthcare infrastructure and core healthcare providers,” Ng said.

This is the same sentiment echoed by Golden Gate's Hall: “The ongoing digitisation of healthcare will continue unabated, especially those concerning supply chain and fulfilment; mental health; chronic health management; software.”

Other startups, which experts expect to see a boom in, include digital services, as the world moves into a COVID endemic normal; and gaming, which will see more integration and consolidation in 2022 as the metaverse continues to build out.

“The excitement over metaverse provides a tailwind for the gaming industry as seen from Big Techs’ massive acquisition deals (e.g., Microsoft’s acquisition of Activision Blizzard),” Ng said.

Overall, 2022 will “continue to see the rise of freshly minted unicorns,” Wong said, following the “blockbuster” number of new startups valued at over $10b last year.

The fundraising environment, however, will be more challenging this year, at least in the near term, according to Wan as there will be “major economic headwinds at play from the ongoing Ukraine conflict and rising interest rates.”

“2022 calls for start-ups to be more efficient with capital and focus on sustainable growth,” Wan said.

Wong, meanwhile, sees “spillover effects from public market volatility could potentially impact investor sentiment in private markets” in 2022, but given that entrepreneurs are a resilient bunch,” she said “investors will continue backing founders who are comfortable navigating opportunities in times of uncertainty.”

Emerging tech sectors

Singapore is already home to 3,800 tech-enabled startups, and with the industrialisation revolution and as the world rapidly undergoes digitisation, tech’s stronghold in the city’s startup ecosystem will not wear off soon.

As Dixon puts it, “everything's tech these days,” and the only question now is what type of tech will emerge next.

Ng said that based on Quest Ventures’ observations, the tech sector that will emerge in 2022 would be agritech, edutech, healthtech, biotech, deeptech, and foodtech, which Singapore has already been known as a leader on.

Dixon said he personally and professionally finds foodtech as an exciting sector as it also has an ESG perspective.

“[Let’s say], beef in a lab instead of, you know, feeding cows that are creating emissions and taking up land and stuff like that. So, I think, food tech is a really interesting one,” the Accelerating Asia partner said.

Foodtech was also cited as one of Singapore’s strengths in the startup ecosystem by the Global Entrepreneurship Network; and with the government investing $144m in cultured meat and microbial protein production, foodtech is well on its way to being an emergent sector.

As of 2021, more than 15 alternative protein startups have anchored themselves in Singapore, data from the Global Startup Ecosystem Report 2021 showed.

But the government is not only keen on supporting the development of foodtech and agritech, it has also been ardent in propping up deep tech.

Based on the report, the Singaporean government has set aside US$300m in 2021 as part of an initiative to catalyze investment in Deep Tech startups.

Wan said they also expect to see more data and AI-related innovations this year in Singapore, particularly on 5G.

“5G’s low latency, high bandwidth, and ability to greatly reduce power consumption of end devices like drones and AR/VR headsets opens up exciting possibilities for both consumer and enterprise applications,” he shared.

Next step

After considering what sectors would emerge, and which verticals would interest VCs in 2022, what step should budding founders do next?

Ng said they should create a clear fundraising roadmap as this would help them not run out of fuel for their growth.

“We always encourage founders to fundraise early and get investors to support their growth and scaling,” she added.

Hall had similar advice with Ng. “If you can raise now, do so. Hoard cash, reduce burn and marketing spend if you need to, and watch how the markets react over the next few months. If there is a downturn that affects the private markets, you'll need to stretch the dollar for as long as possible,” he said. 

Dixon, for his part, told founders to understand their business well by knowing the key drivers of their startups.

SEE FULL LIST: 20 Hottest Startups of 2022