To Riyadh, Hat in Hand

“We came to San Francisco looking for them in 2017. Now . . . everyone is coming to [us].”

Ibrahim Ajami, Mubadala Investment Company (Abu Dhabi’s $284 billion sovereign wealth fund)

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Every hour on the hour, a private jet filled with men in Patagonia vests is landing in the Middle East. What do they want?

What does everyone want? Money.

From a new report in the Financial Times:

Top technology VCs such as Andreessen Horowitz, Tiger Global and IVP have jetted teams of executives to Saudi Arabia, the United Arab Emirates and Qatar in recent weeks, according to people with knowledge of the trips.

These visits come after their traditional North American and European backers contend with an economic downturn that has forced them to rein in private investments.

Here’s what’s going on.

VC’s usual investors are US pensions and endowments. Those guys aren’t investing right now.

Pensions and endowments allocate a certain percentage of their money to venture capital. A typical allocation might be 15%.

But the rest of their portfolio, especially stocks, has been hammered in the past year. Since venture investments aren’t priced daily, those appear to have held up better.

What happens when your stocks are in the toilet and your VC funds haven’t taken big markdowns? That 15% venture allocation has ballooned to 20%, 25%, or more.

So, want to put more money in venture? Yeah, didn’t think so. You’re already overexposed.

But on the other side of the table, VC’s have spent a lot of their funds. They invested rapidly in 2021, and need to raise again so they have something to deploy.

If their normal investors (also known as LP’s) are out, who else is there? Who else has a giant pot of money?

The oil rich nations of the Middle East.

The Middle East is the only game in town for the big VC’s. And the folks in Saudi Arabia and the UAE — they know it.

Now is a great time for them to get huge allocations in the finest funds. They should seize it.

But should the funds take their money?

Some governments in the Middle East have a poor human rights record. If it were me, I would never accept a dime from any authoritarian government, anywhere on Earth.

I just don’t agree with their actions. And frankly, I didn’t need money when I started this business.

However, there’s no reason to paint all of the Gulf with the same broad brush. Some countries are more forward thinking than others.

If a government displays a commitment to treating its people with respect, we should be happy to do business with them.

For smaller funds, the picture gets even more interesting.

Governments aren’t the only ones in the Middle East interested in tech. There are also many wealthy individuals who want a piece of the future.

If that person is honorable, I welcome the opportunity to do business with them, wherever they live.

What do you think of tech in the Middle East? Leave a comment and let us know!

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