Sustainability, biomedical startups draw investors, founder focus

A nine-month study in 2023 showed green tech investments totalling $268.5m (US$201m).

As the deadline for achieving net zero approaches, investors and entrepreneurs in Singapore are intensifying their focus on innovations addressing environmental challenges, as evidenced by the increase in green tech investments in 2023 — a trend expected to persist into 2024.

“The sustainability sector likely saw the most number of startups being created in 2023. It was also the sector that had fewer challenges fundraising as it was aligned with several major global trends,” Hsien-Hui Tong, executive director for investment at SGInnovate, told the Singapore Business Review.

“In the coming year, we expect to see continued interest in the sustainability space,” Tong added.

The heightened emphasis on sustainability is reflected in this year's Hottest Startups list, which prominently features a slew of enterprises dedicated to addressing ecological concerns. Leading the charge in the annual list are Muuse, Incy Tech, Infinity Cube, and Prefer, each contributing innovative solutions to environmental issues.

EnterpriseSG reported that green tech deals have “consequently more than doubled since 2022.” In September 2023, volumes of green tech investments rose to 20 and had a total value of $268.5m (US$201m).

“We see traction for green tech enterprises with hardware capabilities in renewable energy, waste management, and battery services attracting investments,” EnterpriseSG in its “Singapore Venture Funding Landscape 2023: A Nine-Month Study” report.

The trend has also been observed in Asia-Pacific. “There has also been growing emphasis on sustainability and environmental concerns leading to the emergence of startups pioneering initiatives such as green technology, renewable energy, waste management, sustainable agriculture and new biodegradable materials,” Dr. PohHui Chia, associate director at Vickers Venture Partners, told the magazine.

Climate tech witnessed a significant upswing in investment, recording $10.15b (US$7.6b) in funding in 3Q23, is a testament to the demand for startups targeting sustainability challenges in the region.

“This surge reflects a growing societal urgency and investor interest in addressing pressing climate challenges through technological solutions. The record-high funding underscores the importance placed on sustainability and environmental resilience in contemporary investment strategies,” Chia said.

Chia reiterated that inventors are increasingly paying attention to startups that demonstrate a tangible social or environmental impact alongside robust financial performance.

“This signals a broader recognition within the investment community of the importance of sustainability and societal value creation. As such, startups with innovative solutions addressing pressing social or environmental challenges are likely to attract increased attention and support from investors,” Chia said.

“Sustainability and Green Technology is an area where entrepreneurs can develop innovative products and services focused on renewable energy, energy efficiency, waste management, sustainable agriculture, and circular economy practices. By incorporating sustainability and social responsibility into their business models, entrepreneurs can appeal to conscientious consumers and investors alike,” she added.

Emphasis on healthcare

Apart from climate sectors, Wesley Tay, principal at East Ventures, said he is also seeing significant opportunities in the healthcare sectors. “We are embarking on more initiatives in these areas,” Tay shared.

Representing the healthcare sector in this year’s Hottest Startups is Mito Health, founded by Kenneth Lou.

In 9M23, the value of healthcare investments in Singapore reached $221.75m (US$166m), whilst healthcare investment hit $390m (US$292m). The figures, however, are lower than their respective 2022 record.

“Startups in sectors such as healthcare and agritech continue to face challenges in fundraising, and a good number of them were struck off in 2023,” Tong shared.

The expert, however, remains positive about the outlook of the healthcare sector, particularly the biomedical space.

“[We expect] renewed interest in biomedical startups as more promising technologies get spun out of our universities and research institutes,” Tong said.

“We believe that groundbreaking developments in quantum technology will lead to greater investor interest in startups in this sector,” he added.

Chia shared a similar sentiment saying that healthcare and biotech are set for considerable growth in Asia-Pacific, projecting investors to surge in areas such as telehealth, personalised medicine, and AI-powered diagnostics.

“The ongoing emphasis on accessible and efficient healthcare solutions, coupled with advancements in technology, creates fertile ground for startups aiming to revolutionise the healthcare industry and improve patient outcomes,” Chia said.

Fintech remains a staple

The emergence of new investment opportunities in other sectors does not diminish the appeal of fintech startups in Singapore, although data from Tracxn showed that the number of fintech companies founded in Singapore last year fell 68.16% YoY to 71.

“Fintech will remain a staple for investors,” commented Tong. The SGInnovate expert, however, warned that “most investors are subtly instructing their founders to sacrifice market growth for profitability.”

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“Startups are going to have to navigate a new normal where the days of easy money to acquire new customers at the expense of fiscal prudence may well be past,” he said.

“At the same time, this represents a big opportunity for startups that are targeting the B2B market in specialised areas such as custodian banking, where the outsourcing of certain high cost/low value services such as client interfacing may be handled by startups adopting sophisticated AI systems. Identifying such niches within the fintech space can be highly lucrative for startups, as there are fewer competitors. Such solutions may also be cheaper to build and run compared with a fintech hoping to offer a full suite of banking services to consumers,” he added.

Amongst the financial services startups that have achieved success in specialised areas of the industry are Libeara and Audax, both of which are also featured on this year's Hottest Startups list.

Data from KPMG showed that in 2H23, fintech funding in Singapore more than halved, declining 68% year-over-year (YoY).

For the whole of 2023, Singapore fintechs raised $1.47b (US$1.1b) in funding from 85 rounds, dropping 67.01% YoY.

The funding decline in Singapore’s fintech sector, however, is in line with the funding drop which happened globally, said Neha Singh, CEO and Co-founder of the market intelligence platform Tracxn.

In 2024, however, Singh said many investors are expecting an improvement in the fintech space. With expected better performance, Singh believes subsegments like payments, particularly cross-border payments will gain more interest this year.

“Payments [in Singapore] are sort of more advanced than what you see in [other] countries. So that continues to be one area within fintech, where we see a lot of activities, both payments, real time settlement payments, as well as cross border payments,” Singh said.

Investors eye AI

Whether in fintech, healthcare, or edtech, Chia said digital transformation would be a “major area of opportunity.”

“This would include technologies such as artificial intelligence, machine learning, blockchain, Internet of Things (IoT) and augmented reality (AR) that can drive efficiency, productivity and innovation. Alongside the expansion of digitisation would be the growing need for cybersecurity solutions to address emerging cyber risks and safeguard digital ecosystems,” Chia said.

Tong shared a similar sentiment saying cybersecurity startups that address “threats produced by artificial intelligence to critical infrastructure will also be a key area of interest.”

In line with the recognition of digital transformation's vast potential and the need for cybersecurity solutions highlighted by Chia and Hsien-Hui, the Hottest Startups list features four AI startups: Transparently.AI, Goodgang Labs, Dozer, and Yuma AI. 

Brinc’s head of Portfolio Management based in Singapore, Milan Thakkar, said startups that “leverage AI have the ability to deliver higher quality products and services for a fraction of the price.”

“AI has the opportunity to substantially alter organisational structures and lower administrative costs associated with operating a company,” Thakkar said.

“We believe that industries where incumbents are slow to adopt new technologies, can have shallow moats, low product gravity and minimal switching costs are ripe for disruption. As the adage goes, ‘your margin is my opportunity,’” he added.

Over the past year, Singapore-based startups in the deep tech space, which include areas like AI, had challenges raising funds, said Tong.

“In general, startups that were capex intensive or raised at inflated valuations in the previous rounds found it difficult to maintain their momentum, and had to settle for down rounds or flat rounds. In the worst cases, some were actually liquidated,” Tong said.

“Those that could show a clear path towards profitability were in sync with investor expectations and generally found support from their existing investor base or with new investors,” the SGInnovate expert added.

Whilst funding slowed for deep tech startups in Singapore, in the whole Asia Pacific region, Chia observed an increasing emphasis on deeptech as a “prominent vertical.”

“Startups leveraging advanced technologies such as artificial intelligence, machine learning, and blockchain are anticipated to disrupt traditional industries and drive significant value creation from enhancing cybersecurity to revolutionising manufacturing processes,” Chia said.