The term deep tech was coined by Swati Chaturvedi, CEO of Silicon Valley-based investment firm Propel(x), to differentiate tech startups built on commonly available technologies and tech companies that engage in long-term scientific and technological research and development (R&D) for the next level of innovations.
General tech startups built on existing technologies often provide an online solution for an offline problem, while deep tech companies tackle more significant issues and bring advanced solutions to complex challenges affecting humanity.
These startups are often conceived in research labs by PhD students or research scientists working on breakthrough technologies.
In Singapore, the majority of deep tech startups are spin-offs from university research programmes such as the National University of Singapore’s (NUS) Graduate Research Innovation Programme (GRIP).
The venture creation programme enables PhDs and research staff at the university to start their own deep tech companies whilst completing their studies or working full time.
“A lot of investment from the academic side has been poured into the startup ecosystem. We are seeing a model where projects created and examined in an academic context, are given the change to be commercialised,” said Colin Miles, Chief Commercial Officer of Zilliqa, a spin-off from NUS proving blockchain platforms for enterprises, in an interview with e27.
An example of a similar spin-off having a larger than life impact is Breathonix. Founded in 2019, the NUS-incubated firm develops non-invasive breath tests for disease detection by detecting volatile organic compounds present in a person’s exhaled breath. They recently launched a breath test that could detect COVID-19 within a minute.
A fertile ground
Although deep tech remains a nascent sector within Singaporean startups, the government has made no secret of its desire to grow this vertical.
This shift in focus can be attributed to the city-state’s push to develop a competitive advantage in the region. Due to the lack of a sizeable domestic economy, Singapore knows it cannot afford to compete with large domestic economies such as Indonesia and Vietnam in the general tech space.
Driving home the need to establish a new competitive advantage was the 24 per cent drop in gross merchandise value (GMV) of the local internet economy in 2020, as reported in the annual e-Conomy SEA report. Regional rivals Indonesia and Vietnam reported 11 and 16 per cent growth respectively.
Deep tech represents an area where Singapore can shine due to its strong incumbent talent base and research facilities. Its education system is miles ahead of its regional counterparts and there has been an increased focus on generating talent for deep tech sectors.
One such initiative is PowerX. Launched by SGInnovate, a government arm supporting the growth of deep tech startups, the full-time traineeship programme is focused on upskilling talent with the essential skills to work in deep tech sectors such as robotics.
Apart from possessing a strong local talent pool, Singapore’s credible intellectual property (IP) laws protect deep tech startups and give scientists the confidence to work on their research without worrying about unlawful duplication.
The republic was ranked second in the world and the top in Asia for IP protection in the World Economic Forum’s Global Competitiveness Report 2019.
However, deep tech startups do have it tougher than their general tech counterparts. The lack of funding is often cited as the main reasons why such startups fail.
Venture investors shy away from investing in deep tech startups due to the high-risk and complex nature of it. With a high probability that the technology in development might fail, it is a risky bet many investors are unwilling to take, especially when there are proven business models in other sectors to invest into instead.
Difficulties also arise in conducting the necessary due diligence for deals as public awareness remains nascent of deep tech sectors and current tools utilised by VCs lack the ability to properly evaluate the value of deep tech startups.
Furthermore, these startups often ask for a higher initial cash outlay than their general tech ones. This can be attributed to the need to conduct long-term R&D for their products and the longer cash runway they need to generate before reaching profitability.
It is not infrequent to find research with an estimated time to market of at least 10 years, which is beyond the lifespan of a typical VC fund.
Besides, founders of deep tech startups are often “entrepreneurial scientists” that lack experience managing businesses and teams. Therefore, they require more guidance than general tech startup founders and this adds an unnecessary element of risk for investors to take on.
The dearth of private investors in deep tech startups has forced the Singapore government to take matters into its own hands and step in. In the 2020 Budget, an additional S$300 million (US$224 million) was set aside under the SG Equity Scheme to catalyse investments into deep tech startups.
Last month, Seeds Capital, the investment arm of Enterprise Singapore, announced a partnership seeking for 10 to 15 private investors to co-invest up to S$150 million (US$112 million) into early-stage deep tech startups.
“Through the co-investments with these private-sector partners, we hope to provide the appropriate guidance and resources that will enable deep tech startups to succeed in developing new and disruptive technologies that can help our enterprises emerge stronger,” Ted Tan, Seed’s Chairman and Enterprise Singapore’s deputy CEO, commented in a statement announcing the partnership.
Besides increased funding, accelerators focusing on deep tech startups have launched in recent years to nurture the growth of the sector.
One such example is Tribe Accelerator. Supported by the government, the accelerator focuses on helping startups utilising blockchain technologies in their go-to-market strategy.
Now into its fourth cohort, local graduates of the accelerator include Accredify, an education management technology company using blockchain to resolve the issue of fraudulent certifications across educational institutions and Xfers, a fintech startup seeking to improve financial access within Southeast Asia.
What does the future hold?
While considerable work has been done to grow the deep tech startup scene in Singapore, it remains far from the finished article. Apart from the government, the task of supporting this nascent sector has to be shared by other stakeholders within the ecosystem, from educational institutes generating talent to investors supporting these innovative startups.
Deep tech startups represent the moon shots others are often afraid to take. Who would have thought detection of diseases was possible through the breath analysis test invented by Breathonix?
Therefore, we can and should do more to support deep tech startups in Singapore and empower those who dare to believe.
Original article: E27