Last week Sanabil, the private investment arm of Saudi Arabia's Public Investment Fund (PIF), one of the world's largest sovereign wealth funds with estimated assets of $620 billion, disclosed its allocations to some 60 venture, growth, buyout and other funds globally. These investments include Insight Partners, Coatue, General Atlantic, Collaborative, Stripes and KKR, which have invested extensively in Israeli startups and in some cases have representatives that sit on the board of directors of these Israeli tech companies.
The Saudis have been investing in tech companies for some years and the previous investments have been disclosed in funds active in Israel such as SoftBank's Vision fund and the Liberty and Infinity funds of senior Trump administration officials Steve Mnuchin and Jared Kushner respectively. Investors identified with the US Republican party like Peter Thiel and Elon Musk have also raised Saudi money for various companies over the years. Musk was assisted by Saudi investments in Tesla and in the acquisition of Twitter.
The murder of Khashoggi changed everything, or maybe not
The disclosure of the Sanabil fund's portfolio proves how deeply Saudi influence has penetrated into Silicon Valley and the heart of the tech industry. The original Saudi investments were probably not made recently and were undertaken secretly in past years. But both sides - the Saudis and the US funds - preferred to remain silent, possibly due to US protests against alleged Saudi involvement in the murder of dissident journalist Jamal Khashoggi in 2018. Venture capital funds do not anyway usually disclose the identity of investors, so apparently this is a coordinated initiative of Sanabil with the funds - for unknown reasons.
Even before the assassination of Khashoggi, Sanabil was very active in the US. The fund invested $3.5 billion in Uber and supported Blackstone. In addition, in April 2018, Mohammed bin Salman, today the Saudi Crown Prince, visited Silicon Valley and met with Apple CEO Tim Cook and Google CEO Sundar Pichai. But after the murder of Khashoggi later that year, US attitudes to Saudi Arabia underwent a radical change. Top US tech executives were discouraged from doing business with the Saudis. OpenAI CEO Sam Altman, the company that has developed ChatGPT, was ousted from the advisory council of Neom, the smart city being built in northwestern Saudi Arabia. Menlo Ventures managing partner Venky Ganesan told "The Washington Post" "It will be a genuine moral challenge to receive money from sources in Saudi Arabia."
In order to improve its image, "The Information" reported, Sanabil chairman Yasir Al-Rumayyan conducted a public relations campaign to apparently distance the fund from the political echelons in Riyadh. With tech investors and startups suffering from scarcer liquidity over the past six months, capital from Saudi Arabia, the UAE, and Qatar has more allure. So for example, US-Israeli cybersecurity company Snyk decided to accept the Qatar Investment Authority's offer to lead a $200 million finance round at the end of 2022, while sustaining only minor damage and preserving the high valuation it had received previously during the boom times.
Gulf State sovereign wealth funds, which manage $3 trillion, have previously Israeli investments. UAE's Mubadala investment fund, which manages $284 million of Abu Dhabi's money, has invested directly in Israel's tech industry through an investment of $100 million in venture capital funds like Viola, Pitango, Aleph, Entrée, and Mangrove.
"There is no political risk for Israeli companies"
Sanabil functions as a limited investor (a term prevalent in venture capital fund investment) in US funds. Does the fact that it is a limited investor paint the funds it invests in with the colors of the Saudi flag? This usually depends on the number of investors in the same fund and the degree of freedom the partners have to manage their investments without the involvement of the limited investors.
Insight Partners, for example, encompasses 158 limited investors, of which Sanabil is just one. In practice, most of the limited investors in Insight, according to PitchBook, are American and include local authority pension funds, universities, and US states.
In such funds, there is a structural separation between the limited investor and the partners who manage the fund and are in charge of locating startups. Although, there are funds that are identified with one investor or a handful of investors. In the case where a limited investor makes up more than a quarter of the capital in the fund, or it is based on his personal capital, the limited investor has the ability to leverage and influence the choice to invest in a particular company. But even in the case where the Saudis are minority investors, there is no real ability to monitor the activity of the Israeli cybersecurity companies or to gain access to their code.
Elron Ventures CEO Yaron Elad, a fund specializing in cybersecurity, says, "In principle, Israeli cybersecurity companies in which venture capital funds have invested that have Saudi limited investors should not be exposed. Limited investors do not have access to information or technology of companies held by a venture capital fund, they only have access to the managing partner. To a certain extent limited investors may be exposed to financial information about the startups, but certainly not to the technology itself."
IVC Research Center founder and chairman and Giza venture capital founder and chairman Zeev Holtzman adds, "Saudi involvement in top Silicon Valley funds has been an open secret in the industry, but it is limited and does not exceed a few percent of the capital invested in these funds. Executives of these funds took part in exclusive conferences organized in Saudi Arabia and the UAE and became sought-after lecturers there."
At the same time, Holtzman said that Israeli companies are not affected by Saudi capital, simply because it rarely reaches Israel at all. And the Saudi funds, unlike the Emirati, do not invest in the Israeli funds, despite constantly courting them. Holtzman also does not see a political danger for Israeli companies in such investments: "The Saudis make a separation for strategic financial investments and do not use the fund as political leverage," he claims.
Published by Globes, Israel business news - en.globes.co.il - on April 14, 2023.
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