With Uber dead, Singapore VCs are now investing in blockchain and AI startups

Analysts observed a surge in venture capital interest in crypto-related investments.

When Uber bowed out of its Southeast Asian operations this year, it sent a clear signal amongst venture capitalists: transport and logistics startups have had their day. 

Whilst deals in technology, transport and logistics, have dominated the scene and should continue to do so as seen in Grab's $2.5b Series G funding, funds will now start to pour into promising areas such as blockchain, medical technology and artificial intelligence. "We observed a surge in venture capital interest in crypto-related investments,” said Kenn Lim, senior associate at CNP Law. 

"Based on our interactions with people in the venture capital sphere, it appears that many venture capital firms are setting up specific focus groups to look into potential crypto-related investments, for fear of missing out on the crypto bandwagon," Lim said, adding that other areas that are increasingly gaining interest among venture capital firms are the medical technology and artificial intelligence sectors.

In 2017, Singaporean FinTech start-up TenX in 2017 raised approximately US$80 million through an ICO. Aside from TenX, there also several big ticket ICOs in the city that amounted to US$381.42m in funding, with average funding around US$25.43m.

For James Tan, managing partner at Quest Ventures, ICOs pose a threat to the venture capital scene as it could have a “global negative reputation flowover and impact” on Singapore's brand. “There are questions raised as to the future role of venture capital firms, especially if ICOs become an effective and sustainable avenue for startups to raise funds as a cheaper and faster alternative to venture capital funding,” said Lim. He added that while venture capital firms are seen as a channel for investors to obtain stakes in private companies, the recent ICO surge by startup companies could put the essential role of venture capital in doubt."

Venture capital activity in Singapore is widely expected by analysts to maintain solid momentum not only for the rest of 2018 but also for the next few years due to an influx in growth-stage funds, a stronger corporate expansion drive into Southeast Asia, and an expected boom in attractive exit deals. But funds will likely have to fight tooth-and-nail for talent and deals amid strong competition and a growing interest in initial coin offerings as an alternative fundraising path.

There have been a record 23 deals that raised US$2.68b of venture capital funding in the first quarter of 2018, surpassing previous records, said Lim. “Whilst we are still in the early half of 2018, we have witnessed a vibrant venture capital scene in Singapore thus far.”

Mature ecosystem
The deepening of venture capital interest in the logistics and financial technology sectors, as well as a broader range of emerging areas, is underpinned by Singapore’s maturing ecosystem.

Singapore saw venture capital investment rise to a record level in the first quarter of 2018 despite a relatively muted level of activity. “It is testament to the maturing of Singapore’s ecosystem that a business such as Grab could be built here to tackle the regional market,” said Chia Tek Yew, Head of Financial Services Advisory, KPMG in Singapore.

Singapore’s maturing ecosystem will also present venture capital funds an opportunity to expand more aggressively into the growing Southeast Asian market, said Cheung. “The funds sought will be larger and geared towards market access and client acquisition,” he said, noting that venture capital companies in Singapore will continue to lure funds from a wide range of investors, including family offices as well as multinationals and conglomerates seeking to diversify their traditional businesses.

“Companies raised venture capital funding for regional and global expansion as these companies raised seed money in recent years to build their businesses mainly in the Singapore market,” added Ken Cheung, partner at Bird & Bird ATMD. “With still low interest rates and globally synchronised economic growth, there is a strong need for venture capital to deploy funds and make investments.”

Lim foresees “significant” venture capital funding to continue flowing into Singapore in the remaining months of 2018. “Many startups in Singapore have reached a stage where they are now ready for larger rounds of funding to embark on regional and global expansion,” he said.