The Singapore startup funding scene is encountering unexpected challenges as the ecosystem failed to raise as much capital in 2024 as in past years. According to global startup data platform Tracxn, budding businesses only received USD 397 million in the third quarter (Q3) of 2024, representing a 26% decline from the $536 million raised in Q3 2023.
While the city-state ranks high in Asia’s startup fundraising scene behind China, India, and Israel, its last peak funding period was in 2022, when it raised USD 4.1 billion. After that, the Singapore VC trends have been on a downward trajectory compared to previous years. There was one similarity, though, with the failure to unearth a new unicorn in this year’s third quarter matching last year’s outcome.
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Tracxn noted that the top-performing sectors in Q3 2024 were financial technology (fintech), retail, and enterprise applications. Early-stage investments in the third quarter dropped 8% from USD 258 million in the second quarter to USD 237 million. Seed-stage fundraising grew 56.5% to USD 80.3 million compared to USD 51.3 million in Q2. Finally, late-stage investments in Q3 surged by 48% to USD 80 million, up from the previous quarter’s USD 53.9 million.
Acquisitions dropped from 14 a year ago to 13 in this year’s third quarter. Even so, this was an improvement on Q2, which only had six company takeovers. For example, EQT Private Capital Asia acquired PropertyGuru, a property technology (proptech) company, in a deal worth USD 1.1 billion. Additionally, there have only been two initial public offerings (IPOs), one each in the first and second quarters, whereas Q3 did not record any.
Factors affecting funding in Singapore’s startup scene
Singapore is a leading hub for startups and investors due to its growing middle class, rapid digitalisation, favourable business environment, and strategic location in the Association of Southeast Asian Nations (ASEAN). Tracxn’s report identified some of the top investors in Q3 2024 as Wavemaker Partners, Antler, and Entrepreneur First. Yet, despite the city-state having these advantages, funding has fluctuated in recent years.
Here are some of the factors contributing to Singapore’s startup funding decline:
- Global inflation and high interest rates: Minister for Finance Lawrence Wong said in his Budget Speech 2024 that inflation rose sharply in 2022, leading to increased energy and food prices that have continued since then. He added that there was uncertainty that the situation would improve as the year went on. Thus, the economic headwinds and high interest rates have affected investors’ bottom line and limited their ability to pump capital into emerging businesses.
- Geopolitical tensions: According to professional services firm KPMG’s Venture Pulse Report Q3 2024 Report, global VC investment was low due to geopolitical conflicts, uncertainties in the market due to the US presidential elections, and the lack of adequate exit activity across regions. The tensions have impacted supply chains, raised energy and productivity costs, and limited trade, among others, leading to reduced investor appetite in uncertain business environments.
- Investor preferences: Even though Singapore secured nearly 80% of the new capital raised by Southeast Asian VC funds in 2023, investors still exhibited heightened prudence and a shift in approach. For one, they have prioritised businesses with a clear path to profitability over those concerned with scaling, meaning reduced investment in some sectors. Secondly, investors have directed capital towards promising, young startups, thereby avoiding the valuation issues affecting later-stage investments.
Increasingly, VC firms focus on impact investing, including funding sectors like greentech and healthtech. The government supports greentech startups by providing money through the Future Energy Fund and attracting investors through its new Refundable Investment Credit Scheme.
Boosting Singapore’s startup funding scene
Ultimately, despite the 26% dip in investments, there was a 9% increase in funding compared to Q2 2024, indicating some recovery and resilience in the ecosystem. The question is how to attract more investors and encourage dealmaking.
Singapore has been investing heavily in Deeptech and has committed 1% of its GDP to the Research, Innovation and Enterprise 2025 Plan, the most substantive research and development (R&D) budget in its history. Focusing on this new sector led to a 31% increase in funding deals in 2023 and a growing pool of global Deeptech VCs such as Emerald Ventures and MassMutual.
Furthermore, Singapore VC trends show that greentech deals more than doubled in volume, targeting areas like renewable energy and waste management. The city-state also supports the artificial intelligence (AI) sector, with Startup Genome reporting a February 2024 USD 734 million five-year investment plan to develop the industry.
In his Budget 2024 speech, Finance Minister and now Prime Minister Lawrence Wong said that the country was entering a messier, more dangerous, and unpredictable world. Even though the Singapore startup funding scene has experienced some ups and downs, the ecosystem is well-poised to attract investments in the long term.