The Committed Innovator: A conversation with Temasek’s Pradyumna Agrawal

Blockchain may still seem futuristic to those outside of crypto-currency trading, but to the global investment firm Temasek, it’s very real, and a natural outcome of Temasek’s history. The company was formed in post-colonial Singapore in the 1970s to run a group of industrial companies that the city-state’s ministry of finance had been running.

Early on, the firm’s leaders felt Temasek could do more to help the country grow if it had autonomy. Today, although the Singaporean government is Temasek’s sole equity shareholder, the company owns its assets outright as a commercial investment company. It operates globally, with a $283 billion portfolio spread across various industries around the world. Since its inception in 1974, it has generated on average 14 percent total shareholder returns.

Pradyumna “Prady” Agrawal is Temasek’s managing director for blockchain investments, and actively searches out new use cases for blockchain and forms partnerships that can help bring products to market. In this episode of the Committed Innovator podcast, Prady talks with McKinsey’s innovation leader Erik Roth about how he approaches bringing blockchain-based companies to market. This is an edited transcript of their discussion. You can listen to the full episode on your preferred podcast platform.

Podcast transcript

Erik Roth: Welcome back to the Committed Innovator podcast. In this episode, we’re starting a miniseries on innovation in Asia, where we’ll meet the leaders in the region to hear about their challenges and successes and highlight the unique opportunities they see in this fastest-growing region of the world.

To kick off this miniseries, Prady Agrawal is here with me today. He joins me from his office in Singapore. We are so excited to discuss his work, as he is the head of blockchain for Temasek, one of the world’s leading investment firms dedicated to bringing sustainability and accessibility of new technologies to the entire world. Prady, thanks again for chatting with us. We’re so excited to have you on the Committed Innovator podcast.

Prady Agrawal: Thank you, Erik, for having me on this show. I’m really looking forward to this conversation.

Erik Roth: You sit in a unique role as you think about technology and innovation. You’re an investor, and many of our listeners may not be familiar with Temasek. Help us introduce what Temasek is and why it’s such a force for change around innovation technology.

Prady Agrawal: Temasek is uniquely positioned. Several decades back, the Singapore stakeholders had the foresight to decide they were in the business of governing the country and not in the business of manufacturing or running airlines and other such large strategic assets. So if you go back to the foundation of Temasek, it was a true source of permanent capital—a vehicle which supported the growth of long-term businesses.

As you track our history, we’ve now evolved into a large global firm where China, Southeast Asia, India, Europe, and the US are fairly well represented across our portfolio. As we’ve embarked on activities, though, we have found increasingly that technology [change] is becoming exponential. So the key focus area for us increasingly is how we keep pace with that change in technology. How do we bring economic benefits, both from an investment-return perspective and to our portfolio companies?

Erik Roth: Your title is managing director of blockchain and venture building. Let’s talk about what that means, coming from what is effectively an investment firm.

Prady Agrawal: The effort started four to five years ago, led by our deputy CEO Song Hwee, where there was a decision to look at more foundational and emerging technologies—areas like artificial intelligence, blockchain, and cybersecurity, which we had a longstanding interest in. In blockchain specifically, we looked at the technology and saw so many game-changing ideas that you could actually bring to life. Back in 2019, there wasn’t much we could invest in at scale, so we had a moment when we said, “Why not take an unconventional approach? We’ll continue investing, we’ll back some of the best founders, but wherever there are white spaces, why don’t we catalyze some action? Why don’t we get involved more directly and help build some businesses?” That’s how we ventured into this brave world of entrepreneurship ourselves.

Erik Roth: In some ways, you’re an orchestrator of capital and opportunities, bringing them together in a way that turns into something of value.

Prady Agrawal: Yes. Our CEO, Dilhan [Dilhan Pillay Sandrasegara], likes to talk about “catalytic” capital. How do we actually use our capital to bring change to catalyze things that are needed? I’ll give you a specific example. When you think of the internet today, some fantastic companies have brought real delight to consumers. Equally, when you think about data and the silos that are developing around data, how do you break down some of the silos? How do you build new business models? It needs a resilient, rugged effort to get these across the line, so those are the areas where we get excited.

Erik Roth: How do you know where to start and how to pick the right spots to make these investments?

Prady Agrawal: We’ve got a bunch of creative people who are bubbling with ideas. It’s very easy to fall in love with some of these big ideas, so the starting point for us is that capital plays a key role, but to bring these ideas to life, capital is not going to be enough. You need the best talent to coalesce around these ideas. Most importantly, is this what the market actually needs? Is this a solution people would be excited about getting behind? That’s increasingly our starting point when it comes to venture building—validating these ideas.

Erik Roth: How do you figure out whether you have a good problem you’re trying to solve? Blockchain is just in its infancy. We all know what Bitcoin and all the other coins and tokens are doing, but many would say the business model hasn’t formed itself yet. How do you pick your spots and know they’re the right problems to solve and that you have a solution that’s got legs?

Prady Agrawal: Back in 2019, I was sitting on a panel where one of the panelists said, “This is a technology looking for a solution.” That’s the most common critique of blockchain, especially on the enterprise side. The approach we’ve taken is to look at whether an idea will truly be globally scalable and whether we can get that across the line, as opposed to boiling the ocean on all possible ideas.

I’ll use a specific example of a great combination of partners and capital coming together with talent and the methodology we use. In cross-border payments, if I have to make a US dollar payment to someone in Singapore, I initiate the transaction here in Singapore, and it gets routed all the way through New York and comes back into a bank account of someone who might be sitting right next to me. If you think about that, in today’s world, that’s ridiculous.

Now, you could argue that the system works as it is, but better technology exists. We’ve spoken to dozens and dozens of customers to ask them, “If a better cross-border payments solution was available, would it solve your problem?” We heard a resounding yes, and in that process, we also found at least a dozen or so other use cases. One became an initiative called Project Ubin, a collaboration between MAS [Monetary Authority of Singapore] and industry to build a blockchain-based payments network, then became a commercially viable venture. But it took two years from the ideation to making it a commercially launched entity.

Erik Roth: It sounds like you identify a gap in the market and then you talk to potential customers and validate your hypothesis. How have you, as a capital investor, thought about the incubation stage?

Prady Agrawal: You’re exactly right; we identify a gap in the market. We then identify who has a role to play in bringing a solution to the market and talk to them, as well as customers. We try to not make it about us as an investor. Once we’ve gotten enough validation, we then think about what the most commercially viable path is to bring it to market. That’s one of the biggest challenges: How do you as a group of individuals or companies bring the best product and technology to market? It’s a completely different challenge but actually no different from any other founder trying to set up a business. For us, the validation is important. The next thing we focus on is the incentive alignment with the partners or with the management teams to bring it to market. Once we’re convinced about it, we bring a commercially viable entity to market.

Erik Roth: What evidence are you looking for that gives you confidence that you’re onto something in terms of an early investment in that proposition?

Prady Agrawal: The evidence we’re looking for is that first and foremost there is a large unsolved problem statement. It has to be a large opportunity. What we’re not going to get behind is something that will then get sold for $50 million or $100 million; that’s just not going to be worth the effort for us. But more importantly, we’re looking for multiple data points from customers on willingness to use it and willingness to pay for it. They may use it, but if we don’t have actual revenue coming through any of these efforts, then that’s not going to make sense.

The best validation we get on this is when we attract some of the big leaders and talent who choose to get behind an idea and take it to market alongside us. To me, that is the magical moment where I think, “Wow, this is not just us believing in an idea. We actually have big leaders who are willing to completely shift their efforts to bring these to market.”

Erik Roth: In most cases, you don’t have the talent and resources to go build these, and you rely on partners and other ventures or collaborations to bring these things to market, correct?

Prady Agrawal: We’re very thankful to many of our operating partners who help bring these ideas to market. What we’re now doing, though, is asking, “How do we build systematic capabilities around this process?” If we’re doing this at scale—not just building five or six, which is what we’ve done at Temasek across our AI and blockchain teams—if we want to do dozens of these over the years and solve some really tough problem statements, then we need proper in-house capabilities. That’s the path we are now going down.

Erik Roth: Why do you think the venture communities have not identified these same problems and scaled them?

Prady Agrawal: Actually, I would not say people have not tried this. If you look at a lot of the private-equity and venture capital firms, they are increasingly getting behind ideas at a much earlier stage. In most instances, they back a business plan or an idea from a founder very early. What we’re doing is to go one step further and tackle the more difficult problem statements that others have not tried or succeeded at, despite wonderful efforts from entrepreneurs backed by investors like us or venture capital firms.

For example, imagine going to large companies and saying, “Let your data travel with your customers.” I don’t think it’s easy to make that pitch to large tech companies or anyone who has data. That requires institutions like ours to come in and ask, “Can we set up completely new disruptive businesses?” That’s really the space we see ourselves playing in. If you have a very simple logic for a platform that is exciting and solves a problem that exists, we just want to back you; we will not reinvent the wheel or coalesce other partners to come alongside us. But if something doesn’t exist and it’s going to take too long, we don’t want to wait anymore. Why wait five years to bring something beautiful into the world, if by our involvement, it can happen faster? We don’t have to control it. We just want to play our role in bringing it to market.

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Erik Roth: What is your unfair advantage here as a capital provider?

Prady Agrawal: Our unfair advantage is a combination of things we for now are referring to as the “four Ps”—purpose, people, partners, and permanent capital. We’re still formulating it. As for purpose, there’s a deep passion in getting involved in some of these areas, making the technology accessible.

On people, we’ve been very intrigued to see the amazing talent that we and our partners are able to attract behind some of these projects. Regarding our partners, you would see this in the next wave of businesses we attempt to bring to market. We want to involve more and more community; it could be individuals, it could be institutions. And in that context, a particular unfair advantage we bring is trust, in the first instance. When people interact with us, there is a natural trust.

The last one is permanent capital. It’s not just about being patient. Actually, patience can be misunderstood. We talk about more up-front capital commitments, which involves being willing to wait for the right set of economics to emerge and the right set of business models to emerge.

Erik Roth: As a committed innovator with long-term capital, what are you looking for? Are these more resilient business models at early stages, or are you just looking for the right team and or technology to partner with and to help scale?

Prady Agrawal: Resilience is one way I describe this when we’re hiring. We are more often than not looking for resilience. There will be so many ups and downs. We’ve literally been building some of these through the COVID period. We’ve all pushed our mental health to the limit, and I have a real appreciation now for the energy that founders bring and what they go through. So yes, it’s a commitment—an up-front commitment—and then resilience is what we bring to the table.

Erik Roth: How did you adapt your investments or support those businesses during a global pandemic? Will that go back to a certain normal state when we reach a different stage in the pandemic, or do you see yourself working in this manner for a long time?

Prady Agrawal: We see this as a hybrid model, where we are no longer going to be able to put constraints on physical co-location. That natural tendency still exists, by the way, for many of us. But yes, you can build these businesses virtually. The teams will have a lot more flexibility on location. It also removes hurdles of accessing talent. There is only so much talent you can find in any one place, and a bit of groupthink comes with it. So we see this as being an increasingly virtual model.

We used to wait for a few weeks to do business meetings, because you would want to travel somewhere to meet people in person, and you spend so much time scheduling these meetings. Now we find we make decisions much faster because we don’t wait to physically go meet someone. Just the other day, we were talking about having a meeting somewhere in the US, and I said, “Hang on, why wait? Why not just get on the phone tomorrow?” Business building, the barriers to entry, access to talent—all of it is meaningfully shifting now.

Erik Roth: Describe this hybrid model you use. What does it look like for an investment company such as yours?

Prady Agrawal: I think a degree of physical co-location and collaboration is invaluable. You need to get teams together just to get to know each other, break bread together, and socialize. That’s invaluable. Irrespective of which models we may coalesce around, we will find every opportunity to get our teams together. Every time we get people in front of a physical whiteboard, the energy and the speed at which we can get things done is much faster than getting onto Zoom calls. Having said that, it doesn’t have to be 24/7, which is why I started by saying it’s a hybrid model we are working toward now.

So today when we are thinking about getting the best product and engineering talent for Web3-based ventures or anything in the crypto and decentralized tech space,1 we’re asking questions like “Should we be in Austin? Should we be in Portugal? Berlin? India? Should we have talent in Singapore?” Our options are no longer limited just to one place.

Erik Roth: How is Temasek thinking about its investments in blockchain and the role your organization can have in bringing blockchain models to life?

Prady Agrawal: We’ve been tracking the technology for seven to eight years—that’s when I remember taking my first meeting with someone in the crypto world. I think large enterprises or institutions still don’t fathom the possibilities of some of these technologies. There’s just too much focus on the volatility and the speculative price movements. But as one of my colleagues tells me, the unstoppable internet aspect of it and business models that can be built around it are there.

Speaking broadly, Temasek is looking at it more foundationally and thinking about how we gain exposure and what we actually do in the space. There are two aspects to this. There is the enterprise blockchain space, which still has a limited set of ideas that make sense, because it’s not so much about the technology, it’s more about getting otherwise competing commercial interests to collaborate on projects, and it’s difficult. The other aspect is more fundamentally the unstoppable nature of it and the censorship resistance involved, which point to so many types of opportunities.

Erik Roth: As you think about decentralized technology, where do you think the value is going to start to emerge from?

Prady Agrawal: If you look at the applications that have broken through, I would call out two areas. One is decentralized finance, or defi as it is broadly described, but even more fundamentally, money movement is already happening in these areas. And I’m not commenting on the KYC/AML [know-your-customer and anti-money laundering] aspects, but the proof that you can actually move money more efficiently and in a cost-effective manner is already happening. You’re already seeing a lot of applications coming up in this area. There is going to be a big shift toward making sure we’re complying with necessary regulations in the process, which takes time.

The second area is gaming. This is something we have been very passionate about. If you think about the folks who are truly native to the space and the ability to, for the first time, actually have digital ownership of assets, that’s something we’re very excited by, even if you’re only talking about nonfungible tokens, or NFTs, which are a favorite topic as it relates to blockchain nowadays.

We focus more on what is unique to that entire phenomenon. If you think about land titles or other non-virtual assets, at a point we’re really just bringing good old over-the-counter asset classes like fixed income onto this new digital infrastructure. It’s like baseball cards, cricket cards, or anything you want to own and say is uniquely yours—how you demonstrate that ownership.

Erik Roth: What you’re describing is a replication of the physical world in a digital way, but is that really the true opportunity? Or is that just step one in a progression?

Prady Agrawal: Step one is taking things we know in the physical world and trying to replicate them in the virtual world. That’s just a natural tendency. But there are unique digital assets we expect to come up which don’t necessarily need to be linked to the physical world. I’ll use my son as an example. He wants to use his allowance to buy digital skins within a video game. He’s native to this kind of thinking. Imagine the possibilities of what the digital asset world is going to look in a world of that kind of digital native. The other day, I walked into his room, and he was chatting with his friend from within a multiplayer game. That’s the new world.

For us in this older generation, it’s harder to imagine these worlds. One of my colleagues is always educating me—and controlling his frustration—when I don’t fully understand these concepts. We can’t imagine these worlds. There’s a new world emerging which you and I may not fully appreciate. We will want to replicate land ownership, but there are completely new digital assets coming up.

Erik Roth: As you look back across the current decentralized technology world, what are your favorite spots where you’re seeing models emerge?

Prady Agrawal: For us in the decentralized world more broadly described, we are deeply passionate about breaking down data silos. We’re deeply passionate about our work with companies like Affinidi, GoodWorker, and Trustana to break down data silos and make data more portable.

Open networks are something we’re also very passionate about, so we’re excited about all the work we’re doing at Partior and Marketnode, work that we’re doing on the AI side with one of our companies, and the work we did with the Diem Association. Truly crypto-native efforts are another area we’re excited by, which includes anything in the finance area, and of course gaming is another area we’re big believers in. We also see a number of other emerging categories like social, which can be very powerful.

Erik Roth: Do you think the regulatory environments around these emerging technologies are at pace with the technology? Are they able to appropriately ensure the safety and trust and viability of them without slowing innovation?

Prady Agrawal: Regulators are catching up very fast. In my experience, they have a very open mind to the possibilities, along with an objective of protecting consumers. But some of these new technologies bring a completely new paradigm, so it’s a steep ask to understand these technologies and new business models again. But we see regulators being quite constructive and catching up very quickly. I think in the next two to three years, it won’t be a discussion on whether you apply these technologies, but more one of how regulators get comfortable with the scale at which some of this can be applied.

Erik Roth: As you think about these technologies and what it takes to be successful in building businesses around them, are there distinct lessons that are different from what it takes to build a business in the classical venture world?

Prady Agrawal: It boils down to one word: people. Every challenge and roadblock that we’ve faced is around people. That is why we are laser focused on putting systems in place to attract people early, at scale, and in a way that lets us deliver around product and engineering. That’s going to be key to building businesses that are truly scalable and sustainable.

Erik Roth: As you look at the map of talent around the world, where is the talent today abundant, if there is such a thing?

Prady Agrawal: I think we are undergoing a massive repricing of technology-related talent around the world. Capital has become truly fungible, and assets are being priced now on a global basis. A lot of it is domain or function specific. We actually don’t see an issue with accessing talent in different locations. Increasingly, the issue is finding alignment with the talent on what problems we’re trying to solve and where we are headed as businesses.

That’s a big difference from the past, when you could throw a package at someone and convince them to cross the line. That’s not enough anymore. People need to understand whether they are truly aligned with what you’re building, where you are headed, and whether you are going to continue to believe in that as you scale. Then people will be willing to commit for the long term. That is a consistent theme we are finding, whether we’re hiring in China, Singapore, India, Southeast Asia broadly, or Europe and the US.

Erik Roth: Are we seeing a rebalancing of where innovation and venture come from? Will we see a shift away from traditional venture and innovation hubs?

Prady Agrawal: Any such shift will be very organic. I don’t think you’ll have the traditional hubs anymore. We may see a lot more depth in the hubs that currently exist. Even just looking at the US, the number of people who moved away from Silicon Valley into different parts of the US in the last couple of years—I think it will be much more evenly distributed in the coming years.

We think of it as an open ecosystem. We have to earn our stripes to be able to attract partners at scale, and that’s slowly beginning to happen. I went into the Affinidi and Trustana offices in Singapore, and somebody asked me whether they could help me find someone, because they didn’t recognize me. I burst out laughing. It was a great moment that showed how much we’ve grown, to the point that not everyone is known to one other now. As for Temasek’s role in all of this, I hope we will have played some role in creating and bringing many more sources of capital and purposeful people together to build new businesses. Hopefully, when we’re doing this ten years later, no one’s talking about us and they’re instead just talking about the ideas.

Erik Roth: Thank you so much for sharing your perspectives and where Temasek is going.

Prady Agrawal: Thank you for this opportunity.

Comments and opinions expressed by interviewees are their own and do not represent or reflect the opinions, policies, or positions of McKinsey & Company or have its endorsement.

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