Temasek to shift focus from direct investing in early-stage startups to later-stage ones

[SINGAPORE] Temasek will be shifting away from direct investing in early-stage startups, instead focusing on growth and late-stage startups.

Fock Wai Hoong, Temasek’s South-east Asia head, said: “These are areas that I think have a better risk profile for us, the business models are proven out, the product market fit is proven up, unit economics are clear.”

Temasek noted that early-stage investment remains capped at 6 per cent of the company’s overall portfolio in July.

The focus for capital deployment will be on helping growth-stage startups scale up. This move impacts only Temasek’s direct investment, with its other fund vehicles such as Vertex Ventures still focused on early-stage startups.

The Singapore investment company still intends to expand its South-east Asia portfolio, but its doing so would depend on the opportunities available that fit its risk-reward profile.

“I don’t think we want to be investing for the sake of investing,” said Fock.

The growth and later stage are markets where investors are a bit more selective and businesses more capital-efficient, something that Temasek will be looking for.

Playing in these later stages will also involve finding exits via the public markets or trade sales. Fock said that what is being done at exchanges across the region is a promising sign for public exits, such as Indonesia depositary receipts on the Singapore Exchange.

“You want companies to be able to access capital across a broad pool of capital without having to list on individual exchanges or multiple individual exchanges,” he added.

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There is also a growing mindset shift away from listing on Nasdaq among startups, unless a company is of a certain size and scale and is known by investors and consumers.

This comes as more realise that liquidity can also be found within regional and domestic markets, where it might receive better brand recognition.

Temasek will engage with like-minded businesses on governance, where it can instil the right level of trust, support founders with institutional-level mature C-suite capabilities and ensure that suitable auditors are used to make sure the numbers are right.

This move comes after a number of high-profile governance failures in companies that were in Temasek’s portfolio, such as eFishery and FTX.

Businesses whose founders might bristle at governance being too cumbersome and slowing down agility might not be the right ones for Temasek to invest in.

“We’re looking specifically for aligned interest and the right partners that are singing the same song, that obviously build high-growth, sustainable, but also well-run businesses,” said Fock.