Deep Tech Investments Have to Be Returns Focused, Say Investors | SGInnovate

Deep Tech Investments Have to Be Returns Focused, Say Investors

Wednesday, January 29, 2020

“What is deep tech?” The question that squarely addressed the often obscure and poorly defined space kicked off a panel discussion at the recently concluded Indonesia PE-VC Summit 2020 in Jakarta.

The panel included Tong Hsien-Hui, Head of Venture Investing at SGInnovate; Pamitra Wineka, Co-Founder and President, TaniHub; and Norazli Mohamad Nor, Senior Vice President, Investments, Xeraya Capital. Between them, they addressed the approaches to make investments in the space more returns focused and how the dial had moved on the sector’s ability to attract funding.

There is confusion around the definition of deep tech – even within companies investing in the space

One of the big stumbling blocks, the panel agreed, was the lack of understanding or agreement on a common definition around deep tech. SGInnovate’s Tong said, “It is research-based technology with the potential to solve the world’s most critical problems.”

But he was quick to add, “When SGInnovate’s mandate was initially created three years ago – to grow the deep tech ecosystem in Singapore and connect it to other ecosystems worldwide – even within the organisation, it was a challenge coming up with a common definition of the term!”

Adding to the confusion were VC funds who, in an attempt to differentiate, tended to jump aboard the latest trends and apply them to general technology companies. Tong said: “Rightly or wrongly, investing in deep tech is a trend in some parts of the world and can be a differentiating factor when raising funds from LPs.”

The areas identified by SGInnovate include quantum technology, medical technology and autonomous vehicles. Indonesia’s TaniHub focuses on agritech.

Malaysia-based Xeraya focuses on life sciences, more specifically areas such as med-tech, medical devices and bio renewables.

When asked to explain deep tech, Xeraya Capital’s Nor was at pains to point out the difference between deep tech and mere digitising.

Giving an example, he said, “In 2018, Roche bought out a company called Flatiron for approximately $2 billion. It digitises electronic health records content. But it also curates the information that makes it important for cancer research and so it became valuable. It is still digitising at the end of it, but it was valuable enough to be worth $2 billion.”

Funding was getting easier to come by, even in areas of deep tech and in geographies that had previously been difficult

Asked about how difficult funding was to come by, TaniHub’s Wineka admitted it was a struggle at the time when there wasn’t a unicorn in the space. He added: “It started to get easier once companies like Ninjacart started growing and went past the unicorn stage. People got used to agritech. Indonesian and Southeast Asian companies still get compared to what is going on in China and India but right now people realise these sectors are very big in Indonesia and very traditional – there’s a lot to do and so funding right now is easier.”

Investments in the space have to be returns-focused

Xeraya Capital’s Nor was clear that his firm was only interested in investing when there was a clear path to an exit. “We hope the funding and market access will come from companies and consortiums that realise the technology is something that can be added to the suite of its products. And which can elevate itself to a company of a larger size.

“That is a framework for companies – they should be interested in the sort of technologies that we have invested in and which have mitigated their technology risk.”

However, this did not mean Xeraya was turning its back on pre-IPO companies. Nor explained, “We also invest in early-stage companies especially in the last few years when a large pharma has an acquisitive appetite for companies with good technologies at a pre-clinical stage.

We make bets at earlier stages of the startup fund lifetime. We are all-in provided it hits the due diligence requirements we have – including IP as a barrier to entry.”

While SGInnovate had a longer returns horizon than many funds, Tong said it was well defined. He explained, “We build a landscape around a specific technology, look at the investment pathways and invest in companies that are stages along that path.

“For instance, while we believe autonomous vehicles are inevitable 10 years down the line, I will not invest in a platform that will only realise returns in the next decade. I will invest in sensor startups that go on to a vehicle which can be sold to companies that have financial returns which I can see today.”

In areas like medical technology, longer investment periods were inevitable.

Tong said, “We have to assess if there’s going to be a market following the FDA trials and binary outcomes that some of these trials engender.”

Original article: Deal Street Asia

Topics: Investments

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