Saudi Arabian Startup Investment Into US Startups Slows

Saudi Arabia’s well of wealth, made up of billions of drums of oil, is expected to peak. And like so many other nations and cities across the world, Saudi Arabia is relying on the disruptive forces of tech to reform and revitalize its economy.

But due to its nascent tech and entrepreneurial scene, Saudi Arabia, much like it does with its own workforce, must look outside the Kingdom to diversify its oil-dependent economy. And in some cases, U.S.-derived startups may be part of the solution for the returns and economic diversity it seeks.

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Over the past four years, VC firms in Saudi Arabia have invested over $5 billion known dollars into U.S. startups—with the pace of investment skyrocketing to highs into 2016.1 And although the Kingdom is opening itself up to new experiences, venture investments made from groups based in the country, as we’ll discover, are about as diverse its economy.

Big Oil, Few Deals

Crunchbase News analyzed 23 venture deals made in U.S. headquartered startups since 2013. Of those deals reported, Saudi Arabian investment firms led over half of the investments made.

From 2013 to 2014, however, the pace of Saudi investment was lackluster in dollar terms. Across those year, a smidge over $112 million was raised.

Over a quarter of that period’s funding total went into San Francisco-based Siluria Technologies, a chemical engineering startup that works with natural gas. The chemical manufacturing company raised a $30 million series D, with Saudi Aramco Energy Ventures as its sole investor. It has since raised an additional $45 million from the National Petrochemical Industrial Company, a Saudi-based plastics company.

But it wasn’t until 2015 that the largest checks from the Kingdom were cut to U.S. startups, as we can see from the chart below.

Aggregate value of rounds Saudi Arabian investment firms participated in.

Over $1.25 billion was invested in U.S. startups across a handful of deals during the start of Saudi Arabia’s investment boom in 2015. The list includes some of the largest private startups and now-public companies in the United States.

Lyft walked away with the vast majority of 2015’s funding haul with a billion dollars as part of its series F, of which the Kingdom Holding Company participated in. Saudi Arabia’s investors also took part in Snap’s $200 million series E, a firm that has since wilted under the watchful eye of public markets.

However, even though 2015 represented a large jump in dollars put into U.S. startups, Saudi firms began participating in even larger deals in 2016. The vast majority of known Saudi Arabian VC money in 2016 went into Uber’s $3.5 billion series G raise, and the sole investor in that round was Saudi Arabia’s Public Investment Fund.

But these investments into U.S. unicorns aren’t just notable due to the size of the rounds. The Uber, Lyft, and Snap investments are the only deals from 2015 to 2016 that depart from what Saudi Arabia knows, in our view, best: oil and its complements, such as plastics, manufacturing, and chemicals.

However, the massive influx of funding in 2015 and 2016 did not carry over to this year. While still beating 2013 and 2014 collective funding totals, Saudi Arabian VC firms merely flirted with U.S. startups in 2017 with $168 million in known fundings. Only one of these startups, Loyyal, a New York-based rewards platform, was outside the Kingdom’s typical investment purview.

This sharp dip in funding could be attributable to Saudi Arabia’s other, more global investment vehicles, such as Softbank’s $100B Vision Fundalmost sixty percent of which is funded by Saudi Arabia and the United Arab Emirates. And although the Vision fund has been reportedly operational since mid-2016, it wasn’t formerly announced until May of 2017. Since the fund is not based in Saudi Arabia, it did not meet our qualifications for inclusion. But its presence has undoubtedly sucked the wind out of VCs in the area with plans to invest in U.S. startups.

So in lieu of Softbank, which Saudi-based VC firms take center stage for interest in U.S. startups?

The Investors

Of the 23 deals made into U.S. startups since 2013, fifteen were backed by Saudi Aramco and its corporate venture capital arm Saudi Aramco Energy Ventures. Of those fifteen investments, both parties led twelve rounds. The firm did not comment on its investment strategies.

It’s not particularly shocking that Saudi Aramco and its corporate venture arm is the most active investor of U.S. startups. After all, Saudi Aramco is the caretaker of the world’s second largest store of crude oil reserves.

However, although it is the most active Saudi-located funder of U.S. startups, it has avoided partaking in the art of unicorn investing. Neither Uber, Lyft, or Snap can count the Aramco’s VC arm as part of its portfolio of investors. Instead, funded startups play well within the company’s strengths, with a particular draw to late-stage deals, as seen in the chart below.

The largest deal Saudi Aramco Energy Venture has taken part in is Desktop Metal’s $115 million series D. According to Crunchbase, the Massachusetts-based startup produces 3D printed metal parts. Saudi Aramco Energy Ventures also participated in the company’s series B as a lead investor. Desktop Metal did not comment on the Kingdom’s funding participation.

The second most active investor is the Kingdom Holding Company, with its investments in Lyft and Snap. The rest of the deals are scattered across Saudi Arabia’s Public Investment Fund, Zad Investments, and others.

Overall, however, deal volume from one of the richest middle eastern countries seems quite low. And it is not apparent that state-owned companies and their investment vehicles have the proper incentives in place to build a robust VC scene that takes part in funding U.S. startups, or even startups at home. For now, it seems, the private enterprise that is investing in startups has been outsourced to others.

  1. This does not include investments made by Softbank’s Vision Fund, of which Saudi Arabia is a majority funder.

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