After a series of missteps, the venture capital "big backer" Temasek is making a major strategic shift.

Author: Zhang Yaqi, Wall Street Journal

Temasek Holdings in Singapore has seen its investment scale drop from $4.4 billion in 2021 to $509 million last year, following a series of painful missteps with FTX, eFishery and others. So far this year, it has only invested $70 million. In the high interest rate environment, the company is shifting its focus to invest in fewer companies that are closer to going public.

When one of the world's largest sovereign wealth funds begins to withdraw from early-stage investment tracks, the winter of the entire venture capital ecosystem may have just begun.

Singapore's Temasek Holdings, after experiencing a series of painful missteps with FTX, eFishery, and others, is rapidly shrinking its startup investment portfolio at an unprecedented pace: the company's investment scale plummeted from $4.4 billion in 2021 to $509 million last year, with only $70 million invested so far this year.

Even more exaggerated is that the number of its first-round investment projects plummeted from 82 in 2021 to just 11 last year—this means that this giant fund managing $300 billion in assets has almost completely withdrawn from the early-stage venture capital game.

According to the Financial Times on the 4th, insiders at Temasek revealed that the fund management believes that rising global interest rates make it more difficult for startups to raise funds and hinder their opportunities to go public. A fund manager familiar with the group's investment strategy stated in a media interview:

"Temasek's investment portfolio has faced considerable setbacks in recent years, and they are changing strategies to achieve greater diversity while reducing the volatility of returns."

Repeated Pitfalls: The Painful Lessons from FTX to eFishery

Temasek's strategic shift is not without reason, but rather a bloody lesson bought with real money. When the cryptocurrency exchange FTX filed for bankruptcy in 2022, Temasek was forced to write off a $275 million investment. As one of FTX's largest investors, Temasek, along with institutions like SoftBank and BlackRock, became victims of the largest fraud in cryptocurrency history.

The impact of this investment failure goes far beyond financial losses. The then Singapore Minister of Finance, Lawrence Wong (now the Prime Minister), publicly stated that this investment caused reputational damage. Temasek subsequently imposed salary cuts on the investment team and senior management.

Even more shocking is the collapse of the Indonesian agricultural technology company eFishery. This startup, which developed an automatic feeding system for fish and shrimp farming, has been exposed for allegations of falsifying sales and profit data. According to media reports in April, one of eFishery's founders admitted to inserting false figures in the company's financial reports.

Temasek's list of missteps also includes Singapore e-commerce company Zilingo, gene therapy company Locanabio, Boston's Pear Therapeutics, and biotechnology company Tessa Therapeutics, among others.

Forced Transformation in an Era of High Interest Rates

The judgment of the Temasek investment management team points directly to the core contradiction in the current market: the rise in global interest rates over the past few years has made it more difficult for startups to obtain capital, severely affecting their prospects for going public. This funding dilemma has also exposed potential issues for several well-known startups.

Under the new investment framework, Temasek will continue to indirectly invest in start-ups through venture capital funds, but its direct investments have shifted to making larger investments in a smaller number of companies that are closer to going public. Currently, early-stage investments are limited to 6% of Temasek's portfolio, with about half made through direct investments and the remainder through venture capital funds.

Temasek's strategic adjustments also reflect the pressure on its overall performance. The fund's performance in recent years has struggled to keep up with the global stock market: the return rate for the fiscal year ending March 2024 was only 2%, while the S&P 500 index rose by 28% during the same period; the previous year even saw a negative return of 5%.

As a sovereign fund established in 1974 that manages the Singapore government's stake in the country's largest enterprises, Temasek has evolved into a global investor over the past two decades. Currently, unlisted companies account for slightly more than half of its $300 billion portfolio value.

Temasek acknowledged the market reality in a statement:

"We have seen a pullback in market investment flows from early investments since 2022, leading to a more cautious approach toward new investments."

Although Temasek has successful early investment cases such as Alibaba, Dutch payment company Adyen, American food delivery company DoorDash, and Indian company Eternal, which owns Zomato, it is clear that in the current market environment, even the most seasoned institutional investors are choosing to proceed with caution.