Stung by startup failures, Temasek builds financial shields

Singapore’s Temasek has “enhanced” its due diligence procedures for direct investment into early-stage startups “to mitigate inherent risks,” a spokesperson from the company told Tech in Asia.

The state-owned investor has been conducting due diligence checks on founders and their management teams to assess governance controls, conflicts, and management risks.

Photo credit: Temasek

In the case of FTX, the failed US crypto exchange that Temasek backed in 2021, the due diligence process involved reviewing audited financial statements, evaluating regulatory and cybersecurity risks, and doing checks on the management team.

“Continuous portfolio management and performance tracking are also in place. Where appropriate, we recommend appointing independent board directors with relevant expertise to provide oversight,” the Temasek spokesperson added.

Tech in Asia understands that Temasek will also be appointing top audit firms to review the financials of startups it’s looking to invest in and consulting with its VC fund partners for due diligence.

These changes come after Rohit Sipahimalani, Temasek’s chief investment officer, expressed his disappointment over uncovering fraud at Indonesian unicorn eFishery earlier this year.

See also: Should Temasek cast net in startup waters after eFishery fiasco?

Temasek held a 5% stake in eFishery. The investor backed the aquaculture startup’s US$90 million series C round in 2022 and its US$200 million series D round a year later.

Another direct investment by Temasek that went sour was Singapore-based fashion startup Zilingo, which filed for liquidation in 2023 after financial and management troubles.

The collapse of these portfolio companies did not only send shockwaves across the tech startup ecosystem, but it also raised serious questions in Singapore about Temasek’s due diligence practices.

The FTX fiasco even led Temasek to cut the compensation of the senior staff involved in the investment decision.

See also: Singaporeans feel ‘betrayed’ by Temasek-backed FTX

Temasek is managing its exposure to risky investments by carefully sizing its investments and increasing the bar for the lowest rate of acceptable returns, the spokesperson said. The firm is also implementing portfolio limits and risk premia, which refers to the expected excess return of a risky asset over one with less risks.

Not scaling back early-stage investments