Middle Eastern Sovereign Wealth Funds Emerge as Key Investors in AI Startups

AI Startups Find Financing Pipeline in Middle Eastern Sovereign Wealth Funds | PYMNTS.com

Sovereign wealth funds have reportedly become major players in the artificial intelligence (AI) funding race. Countries such as Saudi Arabia, Kuwait and the United Arab Emirates (UAE) are turning to AI projects as a way to diversify their economies, CNBC reported Sunday (Sept. 22). In the last year, funding for AI firms from these oil-rich nations' wealth funds have grown fivefold, the report added, citing Pitchbook data. MGX, an AI fund from the UAE, is among the investors looking to take part in OpenAI's latest fundraising effort, which is believed to value the company at $150 billion, sources told CNBC. As the report noted, most venture capital (VC) funds can't afford to compete with tech giants such as Amazon and Microsoft when it comes to funding AI projects. Sovereign wealth funds, however, have no such trouble, as their governments are flush with cash thanks to rising energy prices. The total wealth of the Gulf Cooperation Council countries' is expected to reach $3.5 trillion by 2026, CNBC said, citing data from Goldman Sachs. Meanwhile, another UAE firm, Mubadala, has also invested in OpenAI rival Anthropic, and is one of the most active venture investors, with eight AI deals in the past four years, the report said. Sources told CNBC Anthropic said it would not take money from the Saudis in its last funding round, citing national security concerns. PYMNTS examined AI's potential to transform the Middle East in a report earlier this year. "Successful AI development efforts could not only lead to a wave of local creativity and innovation such as new startups, and attracting generation of students to the field, but could spread the resulting prosperity across the region, countering local disbalances and democratizing the knowledge economy to attract the brightest minds," geopolitical analyst Irina Tsukerman said in an interview for that report. And efforts like Saudi Arabia's Public Investment Fund, boasting over $900 billion in assets, is working to establish itself as a global AI leader, Bas Kooijman, CEO and asset manager at DHF Capital, told PYMNTS in an interview. "The fund could spur innovation, attract global tech partnerships, and accelerate AI adoption across various industries within the region, contributing significantly to Saudi Arabia's GDP," he added.

Middle Eastern funds are plowing billions of dollars into hottest AI start-ups

Sovereign wealth funds out of the Middle East are emerging as key backers of Silicon Valley's artificial intelligence darlings. Oil-rich nations like Saudi Arabia, United Arab Emirates, Kuwait and Qatar have been looking to diversify their economies, and are turning to tech investments as a hedge. In the past year, funding for AI companies by Middle-Eastern sovereigns has increased fivefold, according to data from Pitchbook. MGX, a new AI fund out of The United Arab Emirates, was among investors looking to get a slice of OpenAI's latest fundraise this week, two sources told CNBC. The round is set to value OpenAI at $150 billion, said the people, who asked not to be named because the discussions are confidential. Few venture funds have deep enough pockets to compete with the multibillion-dollar checks coming from the likes of Microsoft and Amazon. But these sovereign funds have no problem coming up with cash for AI deals. They invest on behalf of their governments, which have been helped by rising energy prices in recent years. The Gulf Cooperation Council, or GCC, countries' total wealth is expected to rise from $2.7 trillion to $3.5 trillion by 2026, according to Goldman Sachs. The Saudi Public Investment Fund, or PIF, has topped $925 billion, and has been on an investing spree as part of Crown Prince Mohammed bin Salman's "Vision 2030" initiative. The PIF has investments in companies including Uber, while also spending heavily on the LIV golf league and professional soccer. UAE's Mubadala has $302 billion under management, and the Abu Dhabi Investment Authority has $1 trillion under management. Qatar Investment Authority has $475 billion, while Kuwait's fund has topped $800 billion. Earlier this week, Abu Dhabi-based MGX joined a partnership on AI infrastructure with BlackRock, Microsoft and Global Infrastructure Partners, aiming to raise as much as $100 billion for data centers and other infrastructure investments. MGX was launched as a dedicated AI fund in March, with Abu Dhabi's Mubadala and AI firm G42 as founding partners. UAE's Mubadala has also invested in OpenAI rival Anthropic, and is among the most active venture investors, with eight AI deals in the past four years, according to Pitchbook. Anthropic ruled out taking money from the Saudis in its last funding round, citing national security, sources told CNBC. Saudi Arabia's PIF is in talks to create a $40 billion partnership with U.S. venture capital firm Andreessen Horowitz. It also launched a dedicated AI fund called the Saudi Company for Artificial Intelligence, or SCAI. Still, the kingdom's human rights record remains an issue for some Western partners and start-ups. The most notable case in recent years was the alleged killing of Washington Post journalist Jamal Khashoggi in 2018, an event that triggered international backlash in the business community. It's not just the Middle East spraying money into the space. French sovereign fund Bpifrance has inked 161 AI and machine learning deals in the past four years, while Temasek out of Singapore has completed 47, according to Pitchbook. GIC, another Singapore-backed fund, has completed 24 deals. The flood of cash has some Silicon Valley investors worried about a SoftBank effect, referring to Masayoshi Son's Vision Fund. SoftBank notably backed Uber and WeWork, pushing the companies to sky-high, valuations before going public. WeWork spiraled into bankruptcy last year after being valued by SoftBank at $47 billion in 2019. For the U.S., having sovereign wealth funds invest in American companies, and not in global adversaries like China, has been a geopolitical priority. Jared Cohen of Goldman Sachs Global Institute said there's a disproportionate amount of capital coming from nations like Saudi Arabia and UAE, and a willingness to deploy it around the world. He described them as "geopolitical swing states."