Many investors are pulling back, but the sovereign wealth fund has $284 billion on the balance sheet
(Bloomberg) — Amid a funding crunch and an economic slowdown, venture capitalists and founders have increasingly been turning to the Middle East. At the center of this growing interest: Mubadala Capital Ventures.
In 2017, SoftBank launched its $100 billion Vision Fund with backing from Saudi Arabia Public Investment Fund and Mubadala Investment Co., an Abu Dhabi-based sovereign wealth fund. That same year Mubadala opened its first U.S. offices, looking to invest in Silicon Valley founders. The difference now is that founders and investors don’t need firms like Mubadala to come to them — they’re going overseas to give talks, party-crash and raise funds now that capital is scarce. In an environment where venture spending by almost everyone else is down significantly, Mubadala is finding itself suddenly popular by simply maintaining its steady pace.
Mubadala Capital Ventures, the venture arm of Mubadala Investment Company, has made five new investments in 2023 through April, compared with 14 for all of last year. This year’s bets include Precision Neuroscience, Chroma Medicine, and Epi Biologics. Overall, MCV has deployed $800 million into the U.S. market since its launch in October 2017 and $358 million into Europe since it start there in 2019. That’s a small part of the robust $284 billion Mubadala Investment Co. has on its balance sheet. MCV forms part of Mubadala Capital, which unusually for a sovereign entity, also manages capital for third-party investors such as insurance and pension funds.
Earlier this month, Bloomberg sat down with Ibrahim Ajami, head of ventures at Mubadala Capital at Mubadala’s San Francisco office in Salesforce Tower. MCV manages parent company Mubadala Investment Co.’s Vision Fund investment, and helps advise on Mubadala’s investments in outside venture firms such as Iconiq, Arch and Dragoneer. Ajami, who splits his time between San Francisco, London and Abu Dhabi, was meeting with startups and attending SailGP, a catamaran competition created by Oracle Corp. founder Larry Ellison. What follows is a condensed and edited transcript of the conversation.
Bloomberg: It seems like there’s a bit of a vibe shift going on where Middle East investors are suddenly the belle of the ball. From your perspective, have things changed? Is there a new interest in funding from Mubadala and other Middle East sources?
Ajami: There’s investments in venture capital, specifically from the Gulf and the Middle East, that’s been happening for the past 10 to 15 years. We obviously at Mubadala have been at the forefront of that, but there’s also other institutions, whether that’s Kuwait or the Abu Dhabi Investment Authority and obviously recently with Saudi. This capital has been seeking leading exceptional managers and investors for quite some time. Not just, “Oh, I’m just a VC manager and I used to be a founder. That means I’m a good money manager today.” That’s not the case. The bars are very, very high and we have the ability to choose now who to invest in.Bloomberg: Is that a shift? The ability to choose?
Ajami: We’ve always had the ability to choose who to invest in. We’re just being much more selective and deploying capital that is aligned with our strategy. For example, health care and health tech is a very core part of our strategy at Mubadala. So we work with a lot of managers and we’re meeting with a lot of new managers, specifically in the health-care space.
Bloomberg: Tell us about how you see your relationships with startup founders.
Ajami: You’re entering into a commitment contract with the founder. If you deliver on the business and you build a big business, I will be there as a capital provider and as a long-term partner to you. I’m not just—I’m not your friend. We’ve been having lots of difficult conversations. Right now we’re living in a world of reducing burn, extending runways. So we have a lot of these conversations about how do you become more efficient? How do you go back to fundamentals? We’re having conversations right now with companies about consolidation, selling into larger companies, thinking long-term.
Bloomberg: So you mean companies that didn’t necessarily picture being acquired, that wanted to hold out for an IPO, you’re telling them to consider an acquisition?
Ajami: Absolutely. Because potentially as part of a larger platform, one day, that platform could be a very, very valuable company.
Bloomberg: You wouldn’t have had conversations like that two years ago with a founder.
Ajami: The market’s evolved, of course. Investors are parting with a capital a lot less. The IPO markets are shut down. There’s economic contraction. The risk lens of investment and also the risk lens of how you’re going about running a business has evolved.
I believe this era of capital as a moat is over. “Oh, we’re just going to give this company $5 billion and by giving it $5 billion, it’s going to out-execute all competition, it’s going to have the greatest product, and then it’s going to be the winning company.” Exhibit A of that is Uber vs DoorDash. (Note: the Vision Fund backed both.) They both had a lot of capital, but they both had different strategies to how they’re going to tackle the markets. So clarity and strategy, and ultimately executing is important. Capital is important, but it’s not the most important differentiator. It’s no longer a world where the bigger fund you have then the better you are.
Bloomberg: That’s interesting coming from a SoftBank backer who arguably enabled that era.
Ajami: Exactly. That’s also interesting coming from a sovereign — we have a significant amount of capital. The message I’m trying to send is that we’re moving into a world where clarity and precision of strategy and very clear risk lens becomes a very important differentiator as a money manager.Read more: Secretive Gulf Family’s $300 Billion Fortune Is About More Than Oil
Bloomberg: Would you say WeWork—perhaps the Vision Fund’s most disastrous investments — was the last big example of that capital-as-a-moat strategy?
Ajami: WeWork was one of them. It was one of those. Lots of capital, expand, high growth, this era of exponential scale. So it’s good learnings. I think ultimately our investment in SoftBank Vision Fund will be a good investment because of how we structured that fund commitment. (Note: Mubadala’s $15 billion commitment in 2017 included a preferred security on which SoftBank is paying a coupon of 7% annually over 12 years, meaning smoother returns.)
Bloomberg: Still, many people think of Mubadala as a big spender, in part because of your ties to SoftBank. Has that association hurt you at all?
Ajami: The industry’s moved on from some of the things that happened in 2017, 2018. First of all, a lot of the industry has benefited from the SoftBank investments, contrary to what you hear. There’s a lot of learning, some important companies built. (Note: in addition to high-profile disappointments such as WeWork, the Vision Fund also backed companies such as Arm, Flexport, Slack and Uber.)
Bloomberg: Are there any areas where you wouldn’t invest?
Ajami: We don’t invest in tobacco or alcohol.
Bloomberg: What about China, where the U.S. government may soon announce restrictions around investments?
Ajami: We have an active investment program in China (at Mubadala Investment Co.), but it’s not part of this venture platform. We look at China and Southeast Asia as an important growth opportunity in the world. There’s a lot of technology innovation, and exciting technology companies being built. That’s an important part of our long-term plan.
Bloomberg: How will investing in early-stage venture move the needle overall for Mubadala? With a $284 billion fund, you’d have to make so many giant, giant returns to even make a few percentage points’ worth of difference.
Ajami: In 10 years, our goal is that some of the companies we’re investing in today would be worth a hundred billion. These are very important technology companies that are shaping industries. Venture capital is not the only strategy for Mubadala. But technology underpins a lot of the other sectors that we play in.Read more: The New Bankers to the World Aren’t on Wall Street
(Updates in the third paragraph with details on investment activities at Mubadala.)
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