Sovereign wealth funds have increasingly poured money into technology startups in recent years at earlier stages of the business cycle, and they have also been making such investments more directly. This has implications for entrepreneurs across the region.
A growing number of large investors – most notably Asian SWFs and Japan’s Softbank (heavily backed by Saudi Arabian state capital) – have been sharply ramping up their involvement in early-stage tech deals in the past few years.
SWFs executed a record-high 63 deals across different stages of venture financing in 2018, according to data published by the International Forum of Sovereign Wealth Funds in May. That was nearly quadruple the 17 in 2015. The sharpest growth came in the earlier (A to D) venture capital funding rounds, and activity has been dominated by Asian state funds.
Moreover, SWFs are now leading or co-leading more venture transactions than ever before: 35 funding rounds last year, more than twice the 16 seen in 2017 and more than quadruple the eight that occurred in 2015.
CHANGING MODELS
This acceleration underscores a shift in sovereign wealth funds’ approach away from conventional fund commitments towards more direct and co-investment said Bernardo Bortolotti, director of the sovereign investment lab at Bocconi University in Milan.
SWFs are changing their approach by setting up separate platforms for tech investing, because deal sizes in early-stage investments are relatively small; typically under $10 million. Vertex Ventures, owned by Singapore's Temasek, is a well-established example.
In 2018, 17 SWFs participated in venture deals, compared to just seven before 2014, according to a study released in April by Spain’s foreign trade institute Icex and the Madrid-based IE Business School.
What’s more, a growing number of sovereign funds have been establishing offices in San Francisco to be closer to Silicon Valley. Temasek, Abu Dhabi's Mubadala, Qatar Investment Authority all did so in 2017, while Saudi Arabia’s Public Investment Fund indicated the same plan in February this year.
Asian SWFs – notably GIC and Temasek – have been the most active among their peers in global technology investment.
This trend means more entrepreneurs can now access long-term capital at a much earlier stage, so more time to focus on building the company rather than scrambling for the next pay cheque.
