By Daniel Bardsley
Middle Eastern investors see technology as one of the most appealing opportunities for long-term growth, and not just in the United States
It is, quite simply, the world’s largest private equity fund.
With $93bn at its disposal and a further $7bn set to be raised, the Vision Fund, run by Japan’s SoftBank, is shopping for technology investments. The fund’s largest single backer is Saudi Arabia’s Public Investment Fund (PIF), which has put in $45bn, while Abu Dhabi’s Mubadala Investment Company is third on the list with a $15bn contribution.
Areas such as biotechnology, telecommunications, robotics and AI are likely to be high on its list of priorities.
While SoftBank has said at least $50bn will be invested in start-ups in the US, Europe’s technology sector is likely to also be a target. This reflects a growing interest from Middle Eastern investors, especially those from the GCC, who have until now attracted more attention for their big ticket real-estate investments.
“We see various Middle Eastern investors investing in funds or doing direct investments,” says Rob Kniaz, an American who co-founded the London-based early-stage investment company Hoxton Ventures. “It’s a natural progression for investors to start in real estate, as it’s quite universal, and over time add tech to their portfolio.”
The European tech sector is less awash with investors than its equivalent in the US (where Saudi Arabia invested $3.5bn in Uber last year, and the Abu Dhabi Investment Council (ADIC) bought a stake in WhatsApp three years before), potentially meaning it offers better opportunities. “They can cherry pick and find well-placed deals that can give them the growth they’re after,” Kniaz says.
Silicon Valley is not only expensive but also “a bit of a cottage industry”, according to Kathryn Saklatvala, co-author of a 2016 report, Pursuing Innovation: Sovereign Wealth Funds and Technology Investment. “It’s quite dependent on who you know, and new entrants can struggle to gain access,” she says. “The UK and Europe are seen as slightly more open.”
Dubai-based Naseba, which organises business introductions, noted in a 2016 briefing paper that the GCC’s own tech sector is at an early stage and so offers limited investment opportunities, causing investors to look outward.
“Although many investors are hunting for tech opportunities in the US, several European markets are attracting Middle Eastern capital as well. This is particularly true for rising startup and tech hubs, like Berlin,” the company says, adding that e-commerce, mobile applications and fintech are popular.
Deals so far include ADIC’s participation in Spotify’s seventh funding round, in 2015, which raised $400m. The following year the Oman Investment Fund contributed to a $293bn funding round of Oxford Sciences Innovation, which supports start-ups spun out of Oxford University. Also in 2016, the OIF took part in the $95m funding round of Cambridge Innovation Capital, a parallel venture based in the UK’s other top university city, and launched the $200m Oman Technology Fund.
Until now, Chinese investments in Europe’s tech sector have attracted more column inches. These investments – more than $11bn last year alone – have raised concerns over a “laissez-faire” approach to foreign takeovers, especially in Germany, given that Chinese investors are looking to gain access to technology. But there are fewer such concerns when it comes to Middle Eastern investors.
“There isn’t the worry about technology transfer that there is with the Chinese,” says London School of Economics academic Professor Mark Thatcher, who authored a 2013 report, National Policies Towards Sovereign Wealth Funds In Europe, produced as part of The Kuwait Programme on Development, Governance and Globalisation in the Gulf States.
There are multiple reasons why, as Mike Reid, managing partner of London-based Frog Capital puts it, “tech has gone from a niche sector to an increasingly interesting theme”. He cites the technology itself: the next phase of the internet, the smartphone and the creative wireless communication. “These three things are disrupting and innovating markets from transport to media,” he says.
“Another factor is that stock and bond markets are at all-time highs, so people are looking to diversify and hoping to make longer-term attractive returns.”
And it is not just sovereign wealth funds that are taking a more active interest in the European tech sector. Reid has seen enthusiasm too from Middle Eastern family offices; part of a trend for family offices to get “closer to the entrepreneurial and growth investing ecosystem”. So we can expect more deals in future, both from high-profile sovereign wealth funds and under-the-radar family offices.