Headed by CEO Masayoshi Son, the SoftBank Vision Fund continues to soar, as they recently capped a $93 billion-dollar fund. 45% of this fund is backed by Saudi Arabia’s Public Investment Fund (PIF), thus making them the largest investor. For the sake of comparison, Sequoia Capital, one of the largest and most reputable American venture firms, is set to raise an $8 billion-dollar fund, which is considered monstrous for venture capital firms in the US.
While VC firms ideally like to stay as secretive as possible when it comes to their sources of funding, it becomes harder when a funder has gradually built their way into a board seat and 10% ownership of their company, as the PIF has done with Uber. Along with Uber, companies the PIF has poured billions into include Magic Leap Inc., WeWork, Nvidia, Slack, and many more.
Although in the past Silicon Valley has been hypercritical and reluctant to accept “investments from an anti-Semitic country, which punishes gays and de jure discriminates against women”, with competition rising and money being the sole proprietor for functionality for a majority of startups in Silicon Valley, it is hard to decline deals from the cash rich giant. Aware of this trend in the VC industry, the PIF takes advantage of the vulnerabilities of companies in the midst of creation or who are nearing an IPO but are running out of their first rounds of VC funding. In what has become a very successful fund, Softbank’s Vision Fund has closed 20 deals totaling more than $17 billion in startups.
However, this influx of cash (that has admittedly led to new sources of jobs and thriving companies such as Uber) from Saudi Arabia has its array of negative effects on the VC industry that has amounted to what may soon burst the current success of the VC bubble. Recent news about the alleged Saudi killing of journalist Jamal Khashoggi has caused some backlash from major companies in Silicon Valley - Uber, Tesla, and Google have all rescinded their decision to attend a major Saudi business conference. Since accepting funding from the PIF therefore connects companies to the beliefs of Saudi Arabia, more and more criticism is being given to companies that have thrived off of their funding. Consequently, Uber has been forced to give an announcement stating they are on their way to severing ties with Saudi-sponsored cash; however, that is difficult to believe when a Saudi official sits on their 12-person board.
Eventually, a likely path that Uber, as well as the other startups in Silicon Valley, are going to follow is that they will become reluctant, if not fully against, accepting money from PIF sponsored funds. Unfortunately, with a majority of VC firms depending solely on Saudi cash to hit their capital goals, funds are going to be unable to provide an investment to a startup about to IPO or a company attempting get a first round of funding. In addition, companies will abort their startup projects for the fear that they will not be able to receive the larger funding as their project grows and needs to expand. This “fear of funding”—stemmed from the PIF—is a threat that can lead to a complete burst of the VC bubble.