[ All the ways Saudi Arabia’s cash powers tech startups and
venture capital. In two years, MBS poured at least $11 billion into US
startups, making it the industry’s largest single investor.]
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HOW SAUDI MONEY RETURNED TO SILICON VALLEY  
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Jonathan Guyer
May 1, 2023
Vox
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_ All the ways Saudi Arabia’s cash powers tech startups and venture
capital. In two years, MBS poured at least $11 billion into US
startups, making it the industry’s largest single investor. _

The $325bn Public Investment Fund has spent billions on overseas
deals this year even as the kingdom’s economy struggles, Financial
Times

 

It was in late March that Silicon Valley decided that it’s no longer
shameful to accept massive investment dollars from Saudi Arabia.

“The more I think about it, the more Saudi almost feels like a
startup,” Adam Neumann, the WeWork founder, told the audience of the
Miami conference hosted by the kingdom.

Venture capitalists Ben Horowitz and Marc Andreessen were pumped up,
too.

“Saudi has a founder. You don’t call him a founder, you call him,
‘His Royal Highness,’ but he’s creating a new culture, he’s
creating a new vision for the country, he’s got a very exciting plan
to execute, and the people in the country are fired up to do it,”
said Horowitz.

The whole scene at the Miami event, which was hosted by an offshoot of
Saudi’s sovereign wealth fund, would have been unimaginable four and
a half years ago.

In October 2018, Prince Mohammed bin Salman bin Abdulaziz al-Saud, or
MBS as he’s often called, was determined
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the CIA to have ordered the killing of journalist Jamal Khashoggi.
Though Saudi Arabia had been a financial supporter of Silicon Valley,
the killing led some American investors to speak out against MBS. That
month, bold-faced names canceled
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attendance at Davos in the Desert
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a giant event in Riyadh hosted by the Future Investment Initiative
Institute, a nonprofit linked to the Public Investment Fund, the
sovereign wealth fund of Saudi Arabia and the sponsor of the Miami
conference.

But five years later, the Future Investment Initiative Institute,
which is essentially MBS’s private think tank, is hosting investors,
CEOs, and former government officials at events in Saudi Arabia and
the United States. The latest one in Miami featured guests like Jared
Kushner, Steve Mnuchin, and Semafor cofounder Justin Smith, alongside
the mayor of Miami. The event even drew out some celebrities,
including DJ Khaled and A-Rod, and is scheduled to return to Florida
next year.

A few days after the Miami event, Saudi Arabia published the names of
dozens of venture capital firms, buyout funds, real estate investors,
and startups that it’s funding in the US and internationally. The
Public Investment Fund’s venture arm, Sanabil, is putting $2 billion
a year into products we consume and tech we benefit from. It
has direct investments [[link removed]] in
Bird scooters and AI startups Vectra and Atomwise. Plus there’s
indirect money going through other venture funds into companies
including Credit Karma, GitLab [[link removed]], Reddit, and
Postmates [[link removed]], as well as the
popular running shoes brand On
[[link removed]] or the military-tech darling
and Pentagon contractor Anduril [[link removed]].

Among the previously undisclosed firms that had received Saudi funds:
Andreessen Horowitz, whose portfolio companies include Instacart and
SpaceX.

Two weeks later, Sanabil added
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investors Tiger Global and Peter Thiel’s Founders Fund to its list
of investments. Investment powerhouse Sequoia also was added to that
list and then a week later was removed, with Sequoia China, a separate
legal entity, taking its place.

“I was really surprised to see it. I think it’s disappointing,”
said one influential Silicon Valley CEO, who asked to remain anonymous
so as not to rankle colleagues. “I think, going forward, founders
should ask for an answer. Most founders that I know have said things
like, ‘I didn’t even think to ask because it seemed unimaginable
to me.’”

But American venture capitalists might not care as much about optics
these days. Capital markets are tightening in the US and Europe, which
means there’s less money to go around in general. Meanwhile, the
Biden administration is softening its stance on Saudi Arabia and
even partnering
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the kingdom on the Middle East
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as well as energy policy
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initiatives
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There’s also a sense of urgency as China’s prowess as a tech
competitor heightens. The convergence of these factors means that many
new companies and established investing groups have turned to Saudi
Arabia.

Vox reached out to the 60 venture capital and buyout firms and 19
startups that Sanabil has said it’s invested in to ask a simple
question: How does this investment align with your company or firm’s
values? None of them wanted to provide a comment.

Saudi money has become so prevalent in Silicon Valley. Why does
everyone seem to think that’s okay? And why do they not want to talk
about it?

How Saudi Arabia became a startup country

Back before 2018, it seemed like everyone in Silicon Valley was taking
Saudi investments.

Though the kingdom was long understood as authoritarian, Silicon
Valley was excited about the prospect of the young deputy crown prince
known as MBS. He offered a reforming vision that New York Times
columnist Tom Friedman touted
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“more McKinsey than Wahhabi,” and called “his passion for reform
authentic.”

MBS’s hyped-up reputation earned him a rousing welcome
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the West Coast in June 2016 and April 2018. That included face time
with Jeff Bezos, Bill Gates, and Mark Zuckerberg
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well as exclusive visits to the headquarters of Apple and Google.
 

MBS and Tim Cook, the CEO of Apple, at the Apple office in Cupertino,
California, on April 6, 2018.   (Bandar Algaloud/Saudi Kingdom
Council/Anadolu Agency  //  Vox)
During those two years, MBS poured at least $11 billion
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US startups, making it the industry’s largest single investor. Uber
received $3.5 billion
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Saudi Arabia’s Public Investment Fund in 2016, after board member
and former Obama adviser David Plouffe traveled to the kingdom.
Electric car company Lucid received $1 billion
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Magic Leap, the VR headset company, got $461 million
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the fund.

Dozens of others received massive dollars through the SoftBank Vision
Fund
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which was funded through about $45 billion
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Saudi’s Public Investment Fund. SoftBank is a Japanese telecom giant
and multinational conglomerate that gave capital lifelines to startups
like DoorDash, Slack, and WeWork. Through the first Vision Fund,
Neumann’s WeWork received $4.4 billion
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DoorDash got $680 million
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and Slack benefited from a $250 million funding round
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fund. Even Wag, the dog-walking app, got $300 million
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The Wall Street Journal called the scale of investments
“unprecedented
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While people in tech may have taken stances against Saudi behavior,
they weren’t exactly declining money from the Vision Fund, according
to Margaret O’Mara, a historian of Silicon Valley at the University
of Washington.

“If anyone was making those public statements, they did them quietly
enough that they weren’t noticed by me,” she said.

Around that time, MBS had announced his intent to build a futuristic
Saudi desert enclave called Neom
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It would be a place for the young royal to show off his extravagant
wealth through cutting-edge technologies and ostensibly sustainable
design at a grand scale, thanks to $500 billion from the Public
Investment Fund. Now under construction, the urban experiment includes
a 110-mile-long city of skyscrapers called the Line
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ski resorts and tourist beaches, and “climate-proof agriculture
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among other extravagant gimmicks, designed by starchitects
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It’s all come under criticism for evicting indigenous residents,
being wasteful to construct, and for containing potentially dystopian
elements of a surveillance state
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into Neom’s “smart city” infrastructure.

In September 2018, Open AI co-chair Sam Altman, Marc Andreessen, Apple
designer Jony Ive, and former Uber CEO Travis Kalanick all joined
Neom’s board.

The Khashoggi killing happened the following month, and much of
Silicon Valley publicly stepped back from MBS. Altman publicly
resigned from the board, and Ive’s name disappeared from it. Stars
from Google and Uber dropped out of the October 2018 Davos in the
Desert conference. The investors who did attend shielded their name
tags from the press in attendance to avoid the embarrassment of
supporting a ruler accused of ordering a brutal murder, though over
time influential business people started to trickle back
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How startups got comfortable with Saudi investments again

A combination of factors has brought Saudi Arabia back into the fold.

Candidate Biden on the campaign trail pledged to make MBS a pariah,
but as high oil prices tested his global policies, the president
traveled to Riyadh and gave the prince a first-bump in July 2022. It
was an embarrassing about-face
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showed that it was okay to do business with the country. So
if President Biden can’t quit Saudi Arabia
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why would Silicon Valley?

For all of the criticism coming from Congress and corners of the Biden
administration about Saudi human rights, the US has largely continued
to approve major sales of military technologies and weapons to Saudi
Arabia. This American policy decision has given companies top cover
and permission to follow.

“It’s a sensitive subject,” Jonathan Lacoste, the founder of
Space.VC, said by text. “I’ve heard several VCs say that taking
capital from any US ally or partner should be acceptable. … I’ve
also seen VCs acknowledging it’s not worth the risk.”

Given the vicious policies that MBS has pursued, including domestic
crackdowns
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a disastrous war in Yemen
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there are real perils.

“American businesspeople: Tread carefully. This is a country that
does not respect human rights or the rule of law. And if you get
involved, you have to be mindful of who your partner is,” says
Michael Posner, a professor at NYU Stern School of Business, who
previously served as Obama’s top human rights leader in the State
Department. “It is a repressive government that stifles dissent,
that arrests its critics, that doesn’t value free expression. The
list goes on and on.”

 

Attendees in a hall between sessions at the Future Investment
Initiative conference in Riyadh, Saudi Arabia, on Tuesday, Oct. 25,
2022.  (Tasneem Alsultan/Bloomberg  //  Vox)
Meanwhile, the credit crunch and lack of liquidity in markets in the
US and Europe have made investments from Saudi Arabia welcome. “The
firehose of money that came into tech over the last decade is now
being tightened quite a lot,” says O’Mara. So, many large venture
firms, with hyper-scaled assets under management and international
aspirations, have turned to the Middle East sovereign funds for the
sometimes hundreds of millions of dollars they need to fund per cycle.

The structure of such investing, wherein venture firms in practice
don’t disclose their limited partners — that is, where the money
comes from — gives firms like Andreessen Horowitz, 500 Global, and
General Atlantic some plausible deniability, or at least distance
from, their Saudi sovereign wealth investments. And that gives their
portfolio companies even further distance and offers up the
possibility that the startup founder can simply stay in the dark about
where the money comes from.

Another important factor is that China is investing heavily in
advanced technologies, and in response, Washington has centered much
of its hawkish rhetoric on countering China’s influence worldwide.
Silicon Valley is starting to view China
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a lens
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too. Some US investors, who are committed to backing startups that
would ultimately bolster US national security and qualitative edge,
say that Saudi Arabia is the lesser of two evils at a moment when they
see the China threat as particularly acute.

“There are times in history when we have the luxury to moralize and
stand up for certain values, and there are times when you don’t have
that luxury and you have to make compromises,” says Jake Chapman,
managing director of the Army Venture Capital Corporation. In fact, a
number of US military organizations and intelligence agencies have
launched their own investment arms.

In an indication of how comfortable Saudi Arabia has become for
investors, Goldman Sachs president of global affairs Jared
Cohen visited
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kingdom in February. Saudi Arabia is “in control of their own
geopolitical destiny,” he posted on Linkedin
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It was a not-so-subtle way to praise the kingdom and, in effect,
MBS’s stewardship without using the crown prince’s name.

The art
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and media [[link removed]] industries
have also followed this trend line on Saudi Arabia. The money is so
ubiquitous that even Vox is touched by it. Penske Media Corporation
received in 2018 a $200 million investment from the Saudi Research and
Media Group, which is closely linked to MBS. Penske became
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minority shareholder in Vox Media, this site’s parent company,
earlier this year.

The vast distribution of Saudi money reaches some unlikely investors.
Sanabil, the Public Investment Fund’s venture arm, released such a
long list of investees on its website in April, and has continued to
add several more news-making firms there, that that it was difficult
to conceptualize the scope. Iconiq
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ultra-rich tech people, including Mark Zuckerberg, Sheryl Sandberg,
and Jack Dorsey, was also on the list. So was the Peter Thiel-backed
Valar capital investing group and Silverlake
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portfolio of companies includes name brands Airbnb, Dell, and Waymo.

 

The first bump: President Joe Biden being welcomed by MBS at al-Salam
Royal Palace in Jeddah, Saudi Arabia on July 15, 2022.  (Royal Court
of Saudi Arabia/Anadolu Agency  //  Vox)
It gets even more complicated. The fact that Khashoggi was a
Washington Post columnist has led to a standoff between MBS and the
owner of the paper, Jeff Bezos, whose phone was reportedly
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by the Saudi crown prince. Yet an early-stage venture firm that Bezos
backs, Village Global [[link removed]], is one of the
recently revealed recipients of Saudi venture dollars.

“There’s no way you could found a startup in this VC community and
not be beholden to MBS or someone one step away from him,” said
another tech CEO, who asked to stay anonymous to maintain ongoing
relationships.

The moral hazards of Saudi Arabia’s investments endure

The Future Investment Initiative Institute held another gathering at
the Pierre Hotel overlooking Central Park Manhattan last fall, where
networking investors and NGO-types buzzed past the colorful murals of
the Rotunda Room
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Teams of comms specialists choreographed TED-inspired panels being
live-streamed, quickly packaging them into memes and highlight reels
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by with an entourage.

As waiters in white dinner jackets served freshly sautéed salmon and
pasta, the international cadre of attendees were blunt about their
host: Saudi Arabia is where the money is
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Though Silicon Valley once wrestled
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the moral implications of Saudi dollars after the killing of
Khashoggi, tech investors have clearly moved on. Horowitz, for
instance, has been taking founders from its portfolio companies back
and forth
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what Horowitz described as a “startup country.” And some worry
that the potential investments that might emerge from nurturing
relationships through trips like these could help erase the stigma of
the journalist’s murder
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Expect more visits. At the Miami forum, the Public Investment Fund’s
governor said it’s likely to grow from $650 billion today to $1
trillion by 2025 and up to $3 trillion by 2030. With lending severely
tightened
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US and European banking systems, the financial and investing outlook
for American VCs is distressing.

 

Project renderings of Neom displayed on the closing day of the World
Economic Forum in Davos, Switzerland, on Friday, Jan. 20, 2023.
 (Stefan Wermuth/Bloomberg  //  Vox)
The return of US startups courting Saudi money also reinforces a
certain narrative that MBS has created for himself — that he’s a
reformer. The crown prince likes to highlight the splashy
implementation of policy changes such as allowing women to drive, the
opening of cultural spaces like movie theaters, and hosting major
sporting events.

But, far beyond the killing of Khashoggi, the human rights situation
in Saudi Arabia is abysmal
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Executions have doubled under MBS, and many political prisoners remain
incarcerated without due process.

Though Saudi Arabia has not been able to re-attract star power to the
Riyadh summit that appeared in 2017, the year before Khashoggi’s
killing, that may be beginning to change. MBS seems to know it’s
better to stay on the sidelines, and the crown prince is so
influential that he doesn’t need to be in the spotlight. It’s more
effective to have Ben Horowitz and Adam Neumann praise his vision for
Saudi Arabia.

Neumann might even expand his new real-estate startup, Flow, into the
Neom urban experiment. As he put it in Miami, “It’s leaders like
His Royal Highness that are actually going to lead us where we want to
go.”

_Rani Molla contributed reporting._

_[JONATHAN GUYER covers FOREIGN POLICY
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SECURITY
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and GLOBAL AFFAIRS
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Vox. From 2019 to 2021, he worked at THE AMERICAN PROSPECT
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editor he reported on Biden’s and Trump's foreign policy teams. His
accountability stories have won top prizes from the SOCIETY OF
AMERICAN BUSINESS EDITORS AND WRITERS
[[link removed]], SOCIETY
OF PROFESSIONAL JOURNALISTS
[[link removed]], and MILITARY
REPORTERS AND EDITORS ASSOCIATION
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Guyer has written for the New Yorker, the New York Times, the Paris
Review, and Rolling Stone. Previously, he spent five years as a
correspondent in Egypt and researched Arab political cartoons as
a HARVARD RADCLIFFE FELLOW
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Twitter HERE [[link removed]] or reach him by
email at [email protected]
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* Saudi Arabia
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* Silicon Valley
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* Mohammed bin Salman bin Abdulaziz al-Saud
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* MBS
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* Jamal Khashoggi
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* venture capital
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* Tech industry
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* Jeff Bezos
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* Bill Gates
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* Mark Zuckerberg
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* Apple
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* Google
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* Amazon
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* advanced technologies
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* devos
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