Meet the government-backed VC funds that are hedging on Silicon Valley

The news surfaced yesterday that Abu Dhabi Financial Group had made a sizable investment in 500 Startups– the Silicon Valley-based micro-VC that spearheaded the ‘invest small, invest in plenty‘ thesis that shaped our outlook on pre-seed investments. Hit by scandal last year, 500 Startups manages over $400M in capital, and has invested in over 2000 startups- counting among it’s portfolio Udemy, Canva and Fetchr, and has seen its portfolio firms exit with the likes of LinkedIn, TripAdvisor and Yahoo.

However, Abu Dhabi isn’t the first non-traditional investor to become a 500 Startup LP. Back in June last year, Cool Japan Fund injected $10M in the micro-VC, making it at the time the largest LP on board Mothership.

ADFG is far from the only foreign, government-backed investor that has quietly launched a Silicon Valley outpost and is funneling funds to SV startups. Once labelled as ‘Silicon Valley tourists‘, the number of government-backed funds has more than doubled since 2014, stemming from Saudi Arabia, through to Singapore, China, Russia and Japan and today makes up a not-so-insignificant chunk of change that continues to fuel the tech boom.

Sovereign-wealth-annual-chart-1

Some tech pundits (ahem, Bloomberg) blames ‘tech-tourists’ for sustaining the tech bubble. On one hand, homegrown US government agencies have considerably reduced equity investments and grants to tech startups since 2012. On the other hand, US Congress is waging war on foreign investors buying minority stakes in startups- reflecting the fear that Chinese money is investing in ‘sensitive industries’ such as AI, Robotics and Semiconductors.

And to be frank, they are. Technology transfer is a valuable motivation to invest in SV startups and have an indirect trickle-down effect on economic diversification.

Non-traditional investors, including some of the world’s largest SWFs not only hope to make out-sized returns from a potential unicorn, but hedge on new technologies in case their more traditional holding portfolio falls under the threat of digital disrupters. Some have even launched dedicated VC arms that include Tamasek’s Vertex Ventures. Kuwait’s Impulse, and Canada’s OMERS Ventures- geared with the sole task of going unicorn-hunting.

Not all use ADFG’s strategy of venture investment through a local VC firm. On the contrary, an increasing number of SWFs and government-backed funds are by-passing local VC’s all together – harnessing growing manpower, networks, access to difficult-to-penetrate markets and desirability – to invest in Silicon Valley’s hottest startups, and will continue to remain a critical, if controversial pillar, of the VC industry.

So without further ado, let’s take a look at some of Silicon Valley’s most active government VC outposts that are directly investing in startups.

Vision Fund- $12.73BN

Saudi Arabia’s Vision Fund needs no introduction. Dubbed the world’s largest tech fund– it has wasted no time since it’s launch barely a year ago to go on a Silicon Valley shopping spree. This includes a $9BN much-publicized investment in Uber, $1B in fintech startup SoFi, another $870M in construction-tech startup Katerra, $540M in DoorDash and $250M in Slack. Other SV investments include agtech startup Plenty, autonomous vehicle Nauto as well as Brain Corp. That’s $12.73BN already invested in SV out of $98BN already deployed.

chart (7)
Tatjana de Kerros-Budkov

 

Mubadala Venture Funds – $400M

Another SWF stemming from Abu Dhabi, Mubadala launched a Silicon Valley outpost in October last year. With a little less fanfare than it’s Saudi cousin, it has also partnered with Softbank to launch a $400M early-stage VC fund, including another $50M-$70M as a ‘fund-of-funds’. Partly to better monitor the $145BN it has already committed to Vision Fund, Mubadala is looking at Series A and higher and plans to invest in around 25 startups. Although the amounts invested are as yet undisclosed, it has already invested in Series C Color Genomics and Series D Collective Health based out of SV.

Qatar Investment Authority- $20B

The Qatari SWF has been quick to follow in the footsteps of it’s neighbours, by also announcing the launch of a SV outpost in May 2017. QIA is renowned for it’s real estate and luxury investments, but has been mostly active in Europe. Whilst it isn’t the first government-backed fund you associate investing in startups, it did co-invest in Uber all the way back in 2014 to the tune of $1.2BN. In November last year, it also backed the $76.5M Series C of biotech startup Codiak Biosciences.

Temasek Vertex Ventures- $1.5B

Stepping away from the GCC, Vertex Ventures is the Silicon Valley based VC-arm for Temasek- Singapore’s SWF. It was one of the first to launch an official outpost in Silicon Valley, and recently raised another $600M to invest in healthtech startups. Despite over 60% of it’s capital deployed in Asia, Vertex Ventures has been active in the tech capital of the world. Unlike other SWF arms, Vertex Ventures has shied away from mega-rounds, and invests in seed and early-stage tickets as small as $2M. It closed just today a $3M seed round in Palo Alto cybersecurity startup Fyde and invested $11M in Verbit.ai last month. Other recent SV investments include Astound.ai, Quilt Data ($4.2M) and PerimeterX ($23M). In the last year alone, it has conducted over 10 early-stage investments in Silicon Valley. Notable exits includes Waze, who was acquired by Google for $1.3BN in 2013.

Impulse International- undisclosed

Hopping back to the GCC, Kuwait may not have directly invested in Vision Fund, but it was one of the first to dip it’s toes in Silicon Valley through Impulse International- the VC arm of Kuwait investment Authority. Impulse International has a very clear mandate- transfer technology back to Kuwait and the region, and focuses primarily on ICT investments. Whilst KIA is the world’s 5th largest SWF, with assets exceeding $500BN, the fund size of Impulse International hasn’t been disclosed. It’s Silicon Valley portfolio includes Alien Technologies, TVU Networks- and it has also invested in local VC fund CMEA Capital. Impulse seems to not have strayed into the unicorn-hype, and has followed a strategy involving both early and growth-stage investments, although recent activity shows this will be geared up a notch.

OMERS Ventures- $300M

OMERS Ventures has been labelled as ‘the saviour of Canadian startups‘, and is the venture arm of one of Canada’s largest pension funds. It has recently closed it’s 3rd fund, raising $300M and is managing assets over $800M. Despite having an outpost in Silicon Valley, OMERS Ventures has invested in comparatively few SV startups- however it’s few investments  have focused on growth rounds in household names. This includes Shopify, PasswordBox and HootSuite. Of it’s $300M in capital, approximately $27.6M has been invested in Palo Alto- making it a relatively small player compared to other government-backed outposts. However, it uses it’s Silicon Valley base top help Canadian startups pierce the market, and have a local presence.

Sberbank Venture Fund- $250M

Sberbank Venture Fund is the VC arm of Russia’s largest credit institution, who is owned by the government. Although it does not officially have a Silicon Valley outpost, investing in SV startups is nothing new. It was one of Uber’s first international investors, leading a $250M round back in 2016- and recently participated in LendingHome $56.6M Series C. For understandable reasons, SBT Ventures keeps a low-key presence in the United States, however it also recently invested $10M in SaaS startup Identity Mind. Officially, SBT Ventures is based in London, and invests in software and fintech startups. In total, over the last couple of years, the Russian bank has invested over $300M in Silicon Valley, and other Russian Financial institutions such as VTB are following suite- albeit discreetly.

Khazanah Nasionale

Malaysian Khazanah SWF is one of the big-ticket winners of the unicorn hunt- albeit in China. It invested $400M in Ali Baba, and in under two years, generated over $1bn from it’s 0.6% stake. So in 2013, it decided to replicate this success story, but this time in Silicon Valley. This has led to an $879M investment in Palantir, as well as smaller venture rounds in VeloCloud and Fractal Analytics. In total, Khazanah has deployed over $1.6BN in funding to SV startups since it first set up shop.

Taqnia International- undisclosed

For those who aren’t intimately acquainted with technology funds in Saudi Arabia, Taqnia International may have fallen under the radar, especially compared to it’s big brother, the Vision Fund. Established in 2011 and wholly owned by the Public Investment Fund- Taqnia’s Silicon Valley outpost has the mandate of transferring critical technology industries back to Saudi Arabia. It has partnerships with MIT, Stanford, UCLA and Berkeley among others. Although the amount of funding is not disclosed, one of it’s portfolio firms includes Google spin-out Flux, Solar Junction and Intel-acquired Soft Machines. The difference between Taqnia and other SWF VC arms is that it doesn’t invest in hyped-startups seeking to make a big ticket exit- for this, it has it’s Saudi arm Riyad Taqnia Fund. On the contrary, Taqnia focuses on R&D intensive startups that fit into the diversification strategy of the Kingdom.

Data collected and analyzed through Crunchbase and individual portfolio websites. 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s