Silicon Valley VC’s new romance with Saudi Arabia

“We came to San Francisco looking for them in 2017. Now… everybody’s coming to (ours),” said Abu Dhabi’s $6 billion ($9 billion) $790 ) division, said Ibrahim Ajami, head of ventures at Mubadala Capital. A billion dollar sovereign wealth fund. “Technology adjustments have humbled the industry.”

new romance

of financial times We interviewed a dozen VCs in Silicon Valley, managing tens of billions of dollars among them, and a series of advisors and bankers. They portray a new love affair between US venture funds and Middle East cash.

A group of Silicon Valley executives received a personal invitation from the office of Yasir Al-Rumayyan, president of the PIF, a $620 billion Saudi Arabian sovereign wealth fund, who was invited as a guest at the F1 Saudi Grand Prix in Jeddah last month. received. To those who know the call.

According to the person, among those in attendance was Andreessen Horowitz co-founder Ben Horowitz. Andreessen Horowitz declined to comment.

Sanabil, the venture arm of PIF, recently unveiled partnerships with nearly 40 US venture firms, including Andreessen Horowitz, Coatue Management, David Sacks’ Craft Ventures, Insight Partners and 9Yards Capital, a partner managed by former British Prime Minister George Osborne. I made it The amount invested in the company was not disclosed.

Horowitz, whose San Francisco-based firm raised just over $14 billion last year, has become a vocal supporter of Saudi interest in innovation, among other things.

In October, he spoke at the Davos in the Desert conference in Riyadh and had lunch with Princess Reema bint Bandar Al Saud, Saudi Ambassador to the United States. At his PIF-sponsored conference in Miami last month, he hailed the kingdom as an “emerging nation,” and Muhammad bin He likened Crown Prince Salman to the company’s founder.

A year ago, Mr. Horowitz’s visit to Saudi Arabia would have been unusual among VCs hoping to avoid the moral predicament of doing business with a country with deep pockets and a poor track record of human rights abuses. I guess. The Middle East is now buzzing with US startup investors, according to some who have been there this year.

“The Four Seasons in Riyadh is basically Palo Alto,” said one large Silicon Valley venture fund partner.

Hypocrite

Its willingness to do business in the region has led to some criticism. Founders, a partner in his fund, Keislavova, said in 2018 that Silicon Valley was hypocritical about accepting Saudi money, saying, “The difficult funding environment has forced me to uphold my values ​​and principles. I can’t change it,” he said.

But Mitchell Green, founder of Lead Edge, which has made venture investments in Alibaba and Uber, said he spent the past few weeks “building long-term relationships” with people and businesses in the Middle East. “I believe that in the next ten years this field will become an increasingly important field in the world. I remember going to China in 2003.”

U.S. venture capital has exploded in size in recent years, fueled in part by the boom in technology valuations during the coronavirus pandemic.

Once exclusivity-focused marquee funds such as Sequoia Capital and Andreessen Horowitz have raised $5 billion, sometimes as much as $9 billion. This shift is bolstered by large market entrants such as Japan’s SoftBank and Tiger Global, who have pumped tens of billions of dollars into startups.

“They’ve built on the model of high-volume, high-velocity investors, but now they’re hooked on the capital cycle,” said a partner at a venture fund that manages more than $4 billion.

After journalist Jamal Khashoggi was murdered by Saudi operatives in late 2018, many prominent Western companies, including many tech investors, ceased public cooperation with the country.

That lasted until the recent recession, meaning that the pool of capital available for venture funds in the big Western institutions was exhausted. Funding by venture capital firms will reach his lowest level in nine years at the end of 2022, according to research firm Preqin.

As a result, many are being drawn back to the Middle East, “the most liquid place on the planet right now,” according to the head of a billion-dollar venture fund.

Morality remains a tricky debate for some investors. “The US buys oil from Saudi Arabia and sells drones. Where do we draw the line?” He admitted that he had become more open.

Additional reporting by Ivan Levingston, Will Louch, Arash Massoudi, and Antoine Gara