After a series of missteps, the investment strategy of the major venture capital player Temasek has shifted dramatically

Author: Zhang Yaqi, Wall Street Journal

Singapore's Temasek Holdings, after experiencing a series of painful missteps with FTX, eFishery, and others, has seen its investment scale plummet from $4.4 billion in 2021 to $509 million last year, with only $70 million invested so far this year. In the high-interest-rate environment, the company is shifting towards investing in a smaller number of companies that are closer to going public.

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

Temasek Holdings is rapidly shrinking its startup investment portfolio at an unprecedented pace after suffering significant losses from FTX, eFishery, and others: the company's investment scale has dramatically dropped from $4.4 billion in 2021 to $509 million last year, with only $70 million invested so far this year.

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

According to a report by the Financial Times on April 4, insiders at Temasek revealed that the fund's management believes that rising global interest rates have made it more difficult for startups to raise funds and hindered their chances of going public. A fund manager familiar with the group's investment strategy stated in a media interview:

"Temasek's portfolio has suffered quite a blow in recent years, and they are changing their strategy to achieve more diversity while reducing the volatility of returns."

Continuous Missteps: 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 SoftBank, BlackRock, and others, became a victim of the largest scam in cryptocurrency history.

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

Even more shocking was the collapse of Indonesian agricultural technology company eFishery. This startup, which developed an automated feeding system for fish and shrimp farming, was 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 the Era of High Interest Rates

The judgment of Temasek's 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 and severely affected their prospects for going public. This funding dilemma has also exposed potential issues within several well-known startups.

Under the new investment framework, Temasek will continue to invest in startups indirectly through venture capital funds, but its direct investments have shifted towards 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 through direct investments and the rest through venture capital funds.

Temasek's strategic adjustment also reflects the pressure on its overall performance. The fund's performance in recent years has struggled to keep pace with global stock markets: as of the fiscal year ending March 2024, the return rate 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%.

Founded in 1974 and responsible for managing the Singapore government's equity in the country's largest enterprises, Temasek has developed into a global investor over the past two decades. Currently, unlisted companies account for just over half of its $300 billion portfolio value.

Temasek acknowledged the market reality in a statement:

"We have seen a pullback in the market investment flow for early-stage investments since 2022, and therefore we are taking a more cautious approach to new investments."

Although Temasek has successful early-stage 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 even the most seasoned institutional investors are choosing to act cautiously in the current market environment.