Private Equity Took Saudi Money. Now It’s Backing the Region’s Startups
The Middle East’s giant sovereign wealth funds have poured money into dozens of U.S. private tech funds with the expectation that some of those petro dollars will funnel back to the region’s startups. Now there are signs that venture capitalists and private equity funds are responding by scouting for investments in local startups.
In recent months General Atlantic made an investment in Eyewa, an eyewear retailer similar to Warby Parker, based in Riyadh and Dubai. And TPG this year backed Riyadh-based Hala, which provides point-of-sale software, according to four people familiar with the transactions, which haven’t been previously reported. Both General Atlantic and TPG have raised money from Saudi Arabia’s $925 billion Public Investment Fund and are in the process of increasing their in-person presence in the region.
The Takeaway
General Atlantic and TPG raised money from deep-pocketed Saudi backers. Now they’re putting some of their cash back into the region—in startups like Eyewa, a Riyadh-based eyewear retailer similar to Warby Parker.
The investments offer a window into the kind of dealmaking investors expect to increase in the coming years. The first wave comprises PE firms and large asset managers like Wellington Management, which tend to invest in companies that have proven they can make money. They’ve been buying stakes in mature Mideast fintech and e-commerce startups, as well as climate and energy funds. Venture capital firms that back younger companies are likely to follow because the VC firms increasingly have financial ties to PIF. The wealth fund’s leaders expect firms that manage its money to invest in the country.
Andreessen Horowitz has discussed launching a multibillion-dollar artificial intelligence fund in partnership with PIF. New York VC and hedge fund Coatue Management participated in the region’s largest deal last year, a $340 million Series C round for Riyadh-based installment lender Tamara. Both Andreessen Horowitz and Coatue have raised money from Sanabil Investments, a subsidiary of PIF.
Smaller U.S. firms are also making inroads. This week, Saudi logistics startup WheeKeep revealed it had raised an $8 million Series A led by New York VC firm Fintech Collective.
U.S. firms’ investments in local startups represent one part of multidecade plans by the governments of Saudi Arabia, the United Arab Emirates and other Gulf countries to lessen their dependence on oil. In the last decade, they have backed U.S. funds to earn returns on fast-growing tech startups. More recently, the regimes have also invested heavily in developing local startups, courting international founders and technical workers and subsidizing projects like the UAE’s Falcon, an Arabic large language model.
Global investors “traditionally came here for fundraising,” said Eyewa co-founder and co-CEO Mehdi Oudghiri, a former executive at food-delivery startup Foodpanda. But in the last year or so he’s noticed that large PE firms and funds from across the globe are on the hunt to invest.
They “see the region as one of the next frontier markets,” akin to the investment opportunity in fledgling Chinese internet companies 15 to 20 years ago, he said.
Oudghiri and a spokesperson for General Atlantic declined to comment on the firm’s investment in Eyewa. A spokesperson for Hala didn’t respond to requests for comment on TPG’s investment.
The recent flurry of activity aside, the region’s startup economy is still tiny. The total raised by Saudi startups represents less than 1% of $171 billion U.S. startups secured last year and 2% compared to Chinese startups, according to PitchBook.
Middle East startup successes include Careem, a Dubai-based ride-hailing company bought by Uber in 2020 for $3.1 billion and e-commerce startup Souq, acquired by Amazon for $580 million in 2017. These pale in size beside the stars of other emerging markets, such as Indonesian superapp GoTo and China’s ByteDance.
Still, Mideast leaders have been touting their countries’ fast growth as they hobnob at U.S. financial conferences and discuss making more direct investments in U.S. tech companies, particularly in AI.
“Global leading VCs are flocking to the Kingdom to take advantage of the innovation,” said Khalid Al-Falih, Saudi Arabia’s minister of investment, at the Milken Institute’s Global Conference in Los Angeles last week.
Saudi Arabian startups last year raised a record $1.4 billion, more than six times higher than in 2018. That makes the country the most active in the region by startup investments, according to Middle East venture data provider Magnitt.
Global Aspirations
More investments from offshore funds are likely to drive up those totals, particularly as U.S. firms court sovereign wealth fund backers that strongly encourage reciprocal investments. Already some of the biggest firms have been increasing staff and investments in the region.
General Atlantic, which invested just over $400 million in the region since 2015, is in the process of opening offices in the UAE and Saudi Arabia and is hiring local staff in both countries, according to a person familiar with the firm’s strategy. It’s just as interested in investments as in raising capital in the region, the person said. To lead its expansion, last year it appointed Samir Assaf, former HSBC Holdings CEO of global banking and markets, to a new role as chair of Middle East and North Africa.
“We feel that some of these companies can become seriously regional or even global.…What they need is to be scaled up,” Assaf told the publication Arabian Gulf Business Insight.
TPG has long operated an office in Dubai but has recently decided to invest more in the region. In September, the San Francisco–based asset giant appointed Asia managing partner Ganen Sarvananthan to lead the firm’s expansion in the Middle East. Then in December it made a $1.5 billion commitment to Alterra, a new climate investment fund in Abu Dhabi. And last week, TPG announced $8 billion in funds focused on Asia private equity, overseen by Sarvananthan.
“We see Asia and the Middle East as priorities and significant growth areas for the firm,” said TPG CEO Jon Winkelried in a statement ahead of a planned speaking engagement at the Qatar Economic Forum in Doha this week.
The biggest U.S. asset managers are also gearing up to invest more.
Boston-based Wellington Management in November led a $1.5 billion–valuation investment in Tabby, a Riyadh-based “buy now, pay later” startup. In January, Wellington opened an office in Dubai.
BlackRock, which manages $9 trillion in assets, in April established a Riyadh-based investment platform, anchored by an initial $5 billion investment from PIF, which will “support foreign institutional investment into Saudi Arabia,” according to a press release.
The drumbeat of announcements is encouraging to the region’s startups. “These are very strong signals that there is commitment to the region," said Oudghiri.