ANGELES — Startups have long been the domain of
venture capitalists. But with last week’s staggering
$3.5 billion investment in Uber from Saudi Arabia’s
Public Investment Fund, the tech world has been put on
notice — sovereign wealth funds are loaded with cash
and ready to do business directly.
interest rates and volatile oil prices have made
technology companies attractive to these government
investment vehicles, which have assets of $7.2 trillion
today, according to the Sovereign Wealth Fund Institute.
more than double the amount from a decade ago as rapid
development and a commodity boom in emerging markets
such as Asia and the Middle East have bolstered the
number and size of the world’s sovereign wealth funds.
witnessed the explosion of e-commerce, mobile apps and
on-demand services in their home countries, many have
opened offices near Silicon Valley hoping to stash their
money in new technologies.
Investment Corp. contributed to Uber-rival Didi Chuxing’s
$2 billion private equity round in 2015. As did
Singapore’s Temasek Holding’s, which was also
involved in Airbnb’s $1.5 billion private equity round
the same year.
Khazanah Nasional Berhad has invested hundreds of
millions in startups such as Fractal Analytics, a data
analysis firm, and Garena, one of Southeast Asia’s
largest gaming platforms. The Qatar Investment Authority
has been a big backer of Uber and Flipkart, an Indian
wealth funds are increasing their investments in funding
rounds of $100 million or more for venture
capital-backed companies this year, according to CB
of May, government funds participated in as many as 22
percent of such investment rounds this year, up from 13
percent in 2015. Venture capital funds participated in
36 percent of such rounds in May, down slightly from 38
percent last year.
wealth funds are going to play a much bigger role now in
tech," said Michael Maduell, president of the
Sovereign Wealth Fund Institute. "They have the
capital and are looking for the best returns."
good news for larger, private tech companies such as
Uber, which is now valued at $62.5 billion. Sovereign
wealth funds are used to writing big checks — and Uber
is so valuable now that few in Silicon Valley have the
funds to buy a stake.
need to look for investors with very, very deep
pockets," said Evan Rawley, an associate professor
of business at Columbia Business School. "They may
run out of private investors that can pony up that kind
investors would no doubt leap at the opportunity to
shower Uber with billions. But the ride-hailing giant
and other tech unicorns — startups valued at $1
billion or more — don’t want to go public, at least
wealth funds could offer companies such as Uber more
favorable terms and less scrutiny than venture capital
companies with their roster of anxious investors — or
public markets, which require transparency and stricter
could be cynical and say all the smart money’s
gone," Rawley said.
payoff for sovereign wealth funds such as Saudi Arabia’s
Public Investment Fund is a seat at the table at one of
the world’s hottest startups, establishing itself as a
Arabia is attempting to reduce its reliance oil revenue
and aims to diversify its assets under the guidance of
deputy crown prince Mohammad bin Salman al Saud, a noted
fan of Steve Jobs.
major institutional investors such as the Saudi fund go
directly to companies such as Uber, that could pose a
problem for venture capital firms, which view themselves
as gatekeepers to the next generation of valuable
Uber getting big enough, it now makes enough sense for
them to disintermediate the VC firms and go straight to
Saudi Arabia or other institutional investors,"
said Timothy Spangler, a venture capital expert at UCLA
School of Law.
firms are the middleman," Spangler added. "And
everything I’ve learned about tech since 1998 is about
getting rid of the middleman."
Chopra, general partner at Trinity Ventures in Silicon
Valley, isn’t so sure. Sovereign wealth funds are
relegated to the late rounds where there’s less risk,
but also less reward, he said.
don’t see them as competition," Chopra said.
"Venture is a different game. We’re betting on
companies that might not be successful. When sovereign
wealth funds come in, it’s a stage when success is all
but guaranteed. It’s just the level of success that’s
for the companies, they also have to be wary of the
governments they take money from. Another one of
Malaysia’s sovereign funds, 1Malaysia Development Bhd.,
or 1MDB, is currently embroiled in a money laundering
scandal that has resulted investigations of its assets
across the globe, including in the U.S., Britain and
often, though, the criticism blows over — such as when
American labor organizations objected to China
Investment Corp.’s $3 billion stake in U.S. private
equity firm Blackstone Group in 2007 (Incidentally, it
was China Investment Corp. that had to answer to
criticism at home when shares of Blackstone tanked).
were also rumblings last week that Uber had partnered
with a country where most women are still restricted
cannot deny there is always a level of social and
political risk when engaging in cross-border
investing," said Maduell of the Sovereign Wealth