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Gulf investors shape US-China tech competition, from Silicon Valley to Shenzen
Al-Monitor Pro Members
Samuel Wendel
Senior Market Research Analyst, Al-Monitor
June 30, 2023
As elite drivers clashed during Formula One’s Saudi Arabian Grand Prix in Jeddah in March 2023, another race was underway among the luminaries in attendance: a group of Silicon Valley executives looked on, reportedly there by personal invitation from Yasir Al-Rumayyan, governor of Saudi Arabia’s Public Investment Fund (PIF). Facing a funding drought, big name US venture capitalists have been descending on the Gulf in search of fresh funds. Crucially, this comes as Chinese tech players are also keen to tap Gulf wealth amid growing ties, with the PIF potentially set to back a new $1 billion venture fund alongside Alibaba Group. This has all made the Gulf a hotbed of tech competition between the United States and China, with billion-dollar implications for the future of AI, crypto and more.
- Amid a tech industry downturn, the days of easy money for Silicon Valley startups are over and venture capitalists (VCs) are also struggling to raise funds from their own backers: limited partners, or LPs, which range from pension funds to family offices.
- US venture firms raised $11.7 billion across 99 funds in Q1 2023, according to Pitchbook. At that fundraising pace, 2023 could see VCs raise their lowest total capital amount since 2017 and experience a 73% drop relative to 2022.
- Against that backdrop, US venture players want to build long-term relationships with Gulf investors, as regional sovereign wealth funds are flush with cash thanks to high oil prices. Marquee firms including Andreessen Horowitz, Tiger Global and others have sent executives to Saudi Arabia, the UAE and Qatar in 2023, according to the Financial Times.
- Silicon Valley’s relationship with Middle Eastern investors isn’t new — after all, the PIF famously invested $3.5 billion into Uber in 2016 and Abu Dhabi's Mubadala established a VC shop in San Francisco in 2017 — but Gulf wealth previously sought out US tech; now they’re sitting on the opposite side of the table.
- Gulf investors have become more visible and less discrete in US tech. Case in point: Sanabil Investments, the PIF’s venture arm, began publishing its venture investments on its website in April 2023, revealing far more exposure to Silicon Valley than previously known.
- Those surprising public disclosures revealed investments into Andreessen Horowitz, Tiger Global, Peter Thiel’s Founders Fund, Coatue, ICONIQ Capital, Sequoia China, KKR and more.
- Sanabil, which invests around $2 billion annually, hasn’t yet disclosed its latest US ventures. However, Andreessen Horowitz raised roughly $14 billion last year and the firm’s co-founder has become a vocal supporter of tech innovation in Saudi Arabia: Horowitz spoke at Riyadh's “Davos in the desert” in October 2022 and earlier this year reportedly praised the kingdom as a “startup country” and likened Crown Prince Mohammed bin Salman to a company founder.
- US tech investors had largely distanced themselves from Riyadh following Jamal Khashoggi’s 2018 murder, but the Biden’s administration’s reset of US-Saudi policy, and the tech downturn, has made the kingdom a prime destination. “The Four Seasons in Riyadh is basically Palo Alto,” an investor recently told the Financial Times.
- Other Gulf players are also boosting exposure to US venture. “While the spotlight has recently been on the power of the Gulf region, we’ve been doing this for a while,” Ibrahim Ajami, Mubadala Capital’s head of ventures, tweeted in April. “This is as much about liquidity as it is about picking the right partner for the long term.”
- Yet, US tech investors aren’t alone in seeking regional capital: as CNBC reported in June 2023, Chinese VCs that once relied on US investors are looking to the Middle East and have discussed deals with many regional investors in the last 12 months.
- This comes amid China’s broader inroads in the Middle East. Faced with geopolitical tension and a slowing economy, Chinese companies and investors are increasingly courting regional opportunities — especially in Saudi Arabia.
- Thousands of Chinese businesspeople gathered in Riyadh in June 2023 for the Arab-China Business Conference, which saw over $10 billion in deals inked. During this, Chinese VCs told the Wall Street Journal that they saw potential to use the Middle East as a launchpad for introducing disruptive technologies into the global market by tapping Gulf money and its relatively young and affluent populations. Simultaneously, Chinese executives told Bloomberg they’re ready to help Saudi Arabia “de-Americanize” and embrace Chinese technology.
- There have been notable deals on this front: earlier in 2023 the PIF acquired a $265 million stake in Chinese e-sports company VSPO. Gulf neighbors are also active here. In March 2023, Abu Dhabi AI firm G42 bought a $100 million stake in TikTok owner ByteDance.
- This comes as US investors are pulling back from China amid strained ties and its government’s recent crackdown on tech companies. Investments in China-based startups by US-based investors have plummeted so far in 2023, according to Crunchbase.
- Chinese local governments, which are struggling to raise money domestically, have held meetings with the Qatar Investment Authority, PIF subsidiaries and the Abu Dhabi Investment Authority to raise investments around biotech, new energy and other areas, the Financial Times reported in May 2023. Notably, China’s tech hub Shenzhen established a $1 billion Middle East-China cooperation fund with the PIF in January 2023.
- Meanwhile, both US and Chinese players are also pursuing local startup deals. Once again, Saudi Arabia looms large, as startups in the kingdom raised nearly $1 billion in investment during 2022, a 72% increase from 2021.
- News surfaced in June 2023 that Silicon Valley-based tech investor Plug and Play is raising a $100 million fund to invest in Saudi startups, potentially with backing from Jada, a $1 billion fund of funds established by the PIF to help kickstart the domestic venture capital industry. The new fund is scheduled to launch by January 2024, with Plug and Play contributing up to 10% of the total, with Saudi funds and family offices providing the rest.
- In February 2023, Bloomberg reported that eWTP Arabia Capital, a VC fund backed by the PIF and Alibaba Group, was close to raising a $1 billion fund for tech startups in Asia and the Middle East. Founded in 2020, eWTP Arabia Capital has an existing $400 million fund and has invested in at least 16 companies — one of which is UAE-based online coffee marketplace Cofe, which raised $15 million in March 2023.
- Elsewhere, other countries are expanding ties here too. In June 2023, South Korea and Saudi Arabia announced a joint fund worth $160 million to invest in startups from both countries.
Scenario 1: US-China competition forces Middle East investors to take sides
Washington and Beijing’s growing global rivalry sees cutting-edge tech increasingly caught in the crosshairs — from AI to semiconductors. That complicates the long-term investment relationships that Gulf wealth funds want to cultivate, pushing them to favor either the United States or China.
That said, Gulf countries are increasingly amassing strategic autonomy and will resist strongarming by either side. China-US tensions will loom around certain technologies, but plenty of investment opportunities should remain enticing in both countries.
Scenario 2: Saudi Arabia’s relationship with Silicon Valley fizzles
Amid strained US ties and a return to more favorable market conditions, Silicon Valley VCs rely more on traditional LPs again. Meanwhile, Riyadh continues to “de-Americanize” its economy and further embraces Chinese tech.
Yet, Sanabil’s recent disclosures demonstrated that Saudi Arabia is keen to trumpet its Silicon Valley clout. Alongside providing brand recognition, US tech relationships remain key to the kingdom’s ambitions to develop futuristic mega projects and transform its economy.
As the United States and China compete for global tech supremacy, Gulf investors are poised to be big winners by playing both sides. By seizing this moment, regional wealth funds will carve out considerable stakes in the next wave of global innovation — from AI to space-tech — and cement enduring relationships with elite tech investors. Alongside reaping outsized financial returns, that will allow Gulf countries to forge strategic partnerships that boost non-oil economies. Still, the impact of regional investors will likely diminish somewhat in future funding cycles as traditional LPs return, while falling oil revenues may shift investment priorities. Until then, Gulf investors will remain very much in demand.
Samuel Wendel is a senior market research analyst with Al-Monitor covering economic, tech and business trends across the Middle East. He has previously served as a journalist with Forbes Middle East and Wamda, where he reported on key industry developments spanning a range of sectors in the region.
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