Saudi Arabia’s Public Investment Fund manages nearly $1tn worth of assets, making it one of the deepest-pocketed sovereign wealth funds in the world.
As funding has become harder to come by in Europe, startups are increasingly looking to the country, and the wider Gulf region, in their search for capital. Across the last three years, around $500m has flowed from Saudi Arabia into Europe each year, according to data from Dealroom.
But Saudi’s eyes are turning inwards. PIF announced at the end of last year that it plans to significantly slash the amount of capital it invests overseas, in what its governor described as a “paradigm shift.”
European tech startups looking to secure a Saudi cheque are more likely to have to open a local office in exchange for capital.
“There are companies that still expect to go to Riyadh and walk away with cash,” says Rachel Ziemba, analyst and founder of Ziemba Insights, which monitors geopolitical risk for clients. “But even outbound investors are looking for investments that have a domestic growth imperative.”
Operation localisation
Saudi’s drive to localise industries is not new, but it’s undergoing a renewed push.
Nearly a decade ago, Mohammed bin Salman announced Saudi Vision 2030, a strategy aimed at diversifying the country’s economy away from oil. Bringing “cutting-edge technology and knowledge” to the Kingdom is a core objective of the plan.
Riley Gonta from business expansion platform AstroLabs, which has helped UK payments company Checkout.com and Romanian robotics automation software company UiPath expand to Saudi, says tech startups are now a particular focus of the localisation drive.
“Real estate, private equity and infrastructure investments might stay offshore, but for VC and tech deals, they’re keeping that capital onshore,” she says.
“Previously a lot of money was going offshore just to see some ROI,” says Gonta. As the local ecosystems in Saudi, and the neighbouring UAE, have grown, there’s more competition for Gulf investors’ cash, meaning they’re able to push companies to have a regional presence.
Adding to that is the demise of some of Saudi’s outward-facing investments — PIF took a significant hit from its investment in Japan’s SoftBank, for example.
Mandated moves?
One of the Saudi funds most actively investing in European tech is Wa’ed, the venture arm of state oil giant Aramco. There’s also Aramco Ventures, which more directly aligns investments with the interests of Aramco.
A Wa’ed report from 2023 states that any startup backed by the VC “must relocate part of its core operations to Saudi Arabia, including tech teams and R&D functions.”
Startups recently backed by Wa’ed include French quantum computing startup Pasqal. Wa’ed participated in Pasqal’s €100m in 2023, the same year that the company established an office in Saudi. Pasqal told Sifted it could not comment on whether the funding was contingent on the move.
Earlier this week, London-based AI compute provider Ori announced it had secured funding from Wa’ed, and that it plans to launch a subsidiary soon in Riyadh — though founder Mahdi Yahya tells Sifted it had a presence in the country before that.
Multiple investment vehicles sit under PIF, which states the localisation of tech as one of its core KPIs.
VC fund Sanabil, which recently backed Finnish smart ring provider Oura, is one of them. Oura didn’t respond to a request for comment on whether it has a local presence in Saudi, but its product is available in the country.
Other PIF entities include Alat, which was launched last year to invest in semiconductors, AI infrastructure and advanced industrial tech — all with the stated aim of bringing those industries to Saudi.
The exceptions
Saudi’s push to localise seems to be working: last week, the country’s investment minister Khalid Al-Falih told a PIF event in Riyadh that 600 foreign companies have relocated their HQ to the Saudi capital — though the stat is not tech specific.
That said, there’s still a category of companies that the country’s funds appear keen to back without the promise of a local office. Sanabil recently backed much-hyped French AI startup Mistral, which, as far as Sifted can tell, does not yet have a local presence, though it has this week launched an Arabic language model.
Read the orginal article: https://sifted.eu/articles/saudi-investment-europe-startups-pif/
