Historically, private companies that lose hundreds of millions of dollars don’t get to be picky about who provides cash.
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How times change. In recent years, spectacularly unprofitable unicorns have emerged as an asset class sought after with fierce rivalry by the world’s wealthiest investors. Sovereign wealth funds, among others, have poured money into tech startups, fueling an app-driven arms race to see who can gain market share fastest in emerging sectors from ride-hailing to enterprise messaging.
Now that they’ve taken the money from the highest bidder, however, some are wondering whether that was such a good idea. In particular, startup-land is seeing a backlash against the geysers of capital flowing from Saudi Arabia, a nation with both massive oil wealth and a notoriously repressive governing regime.
We’re not going to offer fresh insights into the ethical quandaries around accepting Saudi capital here. But if you’re the sort of person who thinks that it matters just how much money we’re talking about, keep reading.
Drawing from Crunchbase and other data sources, we’re putting together a few datasets summarizing Saudi government and royal family investments in technology startups (and some public tech companies) over recent quarters.
Public Investment Fund
We’ll start with the biggest and newest power player in the startup scene, Saudi Arabia’s Public Investment Fund (PIF). The 47-year-old sovereign wealth fund has significantly bulked up its global startup investment activity in the past couple of years, mostly through its status as anchor investor in the $100 billion SoftBank Vision Fund.
PIF has a lot of capital to invest, and it has allocated a surprisingly large percentage to tech startups and growth-stage companies. Its allocation to the SoftBank Vision Fund alone is reportedly around $45 billion, which has gone into a long list of $100 million-plus rounds for venture and growth-stage tech companies. (We have a full list of Vision Fund investments here.)
Plus, PIF has done some large deals on its own: including most notably the $3.5 billion 2016 financing for Uber. This year’s big rounds include a $461 million Series D for Magic Leap and a $1 billion financing for Lucid Motors.
These are big numbers relative to PIF’s size. Per the fund’s own reporting, PIF had roughly $225 billion in assets as of September, 2017, up from about $150 billion in 2015. That means roughly a quarter of assets are already in assorted private tech companies or tech investment funds (inclusive of its Vision Fund stake).
As a percentage of total assets, PIF’s stake in startup-land is remarkably high. For a typical large asset manager, such as a pension fund or endowment, percent allocation to venture and startups is in the low single digits. PIF has an even larger allocation to private company investments if one adds in private equity. Investments in this sphere include a commitment of up to $20 billion in Blackstone Infrastructure Fund, which focuses on U.S. infrastructure investments.
PIF lays out its goals for startup investment, along with its broader strategy, in its Vision 2030 plan. Its ambitious goals include increasing assets under management to around $400 billion by 2020. Also worth noting is that, of all Saudi investment vehicles, PIF and the Vision 2030 plan are most closely tied to Mohamed Bin Salman, the Saudi crown prince who is widely believed to be behind the reported murder of journalist Jamal Khashoggi.
While PIF is a relative newcomer to large-scale tech investment, Prince Alwaleed bin Talal is not. Since the 1990s, he has been the most famous Saudi royal associated with tech investment, serving as founder, chief executive officer and principal owner of the Kingdom Holding Company, valued around $8 billion per the Saudi Stock Exchange.
Kingdom is principally known for its investments in private equity and public markets, with a particular focus on finance, media and hotels. But Alwaleed also has a sizeable tech and startup portfolio, including big stakes in Twitter, Snap, and Lyft. Kingdom’s most recent big deal was announced this week, as the firm joined a $200 million round for Dubai-based ride-hailing service Careem.
Also big is Saudi Aramco Energy Ventures, which invests primarily in companies developing technologies and tools with oil and gas industry applications. Over the past six years, the firm has made at least 29 known investments, including at least six so far in 2018. Funding recipients include Parsable, a Silicon Valley-based provider of collaboration tools for industrial users, Veretek, a Houston-based developer of pumping technology, and Foghorn, an industrial IoT company. (Full list of investments here.)
A number of Saudi Arabian funds are also investing in companies headquartered either domestically or in neighboring Middle Eastern countries. The list includes Riyad Taqnia Fund, Raed Ventures, Vision Ventures,
The Moral Quandary
Ok, so we said earlier we wouldn’t be weighing in on the moral quandary. But, we can’t help adding an extra twist to the ethical concerns.
It is this: If we say that making money for someone we consider immoral is wrong, does that mean losing their money is therefore morally right? And what happens when one depletes cash endlessly in a loss-generating business model, yet is rewarded with greater market valuation? Does losing their money now become wrong again?
All we can says is things seemed simpler back in the days when hugely valuable companies were also profitable.
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