Saudi Arabia just made its first direct investment in a European startup, and it supports a VC theory about the kingdom's power in tech

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Saudi Arabia just made its first direct investment in a European startup, and it supports a VC theory about the kingdom's power in tech

Mohammad bin Salman

REUTERS/Andres Martinez Casares/Pool

Saudi Arabia's Crown Prince Mohammed bin Salman at the G20 summit in Buenos Aires, Argentina, in November 2018.

  • Saudi Arabia's Public Investment Fund (PIF) has made its first major direct investment in a European startup, participating in a $550 million round into doctor app Babylon Health at a $2 billion valuation.
  • PIF, which has $300 billion in assets under management, is taking a growing interest in tech. It has mostly stuck to funding Silicon Valley firms including Uber, Magic Leap, and through SoftBank's $100 billion Vision Fund.
  • As PIF turns its attention to Europe, European founders and investors will have to address whether taking Saudi money poses a moral quandary after the Kingdom was linked to the brutal murder of journalist Jamal Khashoggi in October 2018.
  • But venture capitalists speaking to Business Insider said there is little concern around taking money from investors with links to Saudia Arabia and, if anything, people are warier of China.
  • Click here for more BI Prime stories.

Saudi Arabia's Public Investment Fund (PIF) has made its first major, direct investment in a European tech company, participating in a $550 million funding round in Babylon Health.

The round values Babylon Health at $2 billion, and will help fund the company's expansion to the US and Asia. Other backers included an unnamed US insurer, German insurance fund Ergo, and existing funders Kinnevik and Vostok New Ventures.

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Babylon said it had closed $450 million of the round, and expected the final close of $550 million "shortly." A spokesman did not immediately respond to a request for clarification.

Babylon Health offers video consultations with doctors, as well as a chatbot that checks people's symptoms. It has caused some controversy over its impact on NHS funding and resources.

The PIF investment cements two new trends: the emergence of sovereign wealth funds in European tech, and the growing amount of Saudi-connected cash flowing into the European startup ecosystem.

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The question is whether this raises a moral dilemma for founders and investors, given the Kingdom was linked with the brutal murder of US journalist and dissident Jamal Khashoggi in October 2018.

The horror over Khashoggi's murder prompted some soul-searching in Silicon Valley, where tech firms have accepted billions either directly from the PIF or from SoftBank's Saudi-backed $100 billion Vision Fund.

About $45 billion of SoftBank's first Vision Fund comes from PIF. Uber has also raised $3.5 billion directly from PIF. WeWork accepted $4.4 billion from the Vision Fund. PIF has also invested directly in Magic Leap and carmaker Lucid Motors.

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The term Silicon Valley, at least to outsiders, connotes a certain positivity and optimism and a sense that technology is good for the world and humanity. That ethos appears incompatible with a regime that murders its opponents and then tries to cover it up.

WeWork's founder Adam Neumann said tech firms needed to "agree on a certain level of moral standards" when quizzed about Saudi Arabia.

Uber CEO Dara Khosrowshahi said in November 2018 that he was "anxious" about Khashoggi's killing. And in November, SoftBank's CEO Masayoshi Son denounced the "horrific and deeply regrettable act," condemning the murder as an "act against humanity, journalism, and free speech."

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Privately, some deals have fallen through. Recode reported last October that at least one US fund manager cut off investment talks with Saudi Arabia over Khashoggi's murder. Sequoia also reportedly has no backing from PIF in its latest funds, despite other Saudi connections.

Now Saudi money is beginning to flow into European tech

Ali Parsa

Babylon

Babylon Health CEO Ali Parsa.

Even with the Babylon investment, there is less Saudi money flowing around European tech - at least in public view.

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Since Khashoggi's murder last year, SoftBank's Vision Fund has led a $440 million round in UK lender OakNorth, and a $484 million round in German travel guide GetYourGuide.

Earlier investments include car dealer Auto1. Saudi Arabia's Kingdom Holding Company has also invested into French music streaming startup Deezer.

Aside from these direct investments, there's the question of how many European venture capital firms may have Saudi-connected limited partners. Venture capitalists aren't generally required to disclose their LPs publicly.

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Investors who spoke to Business Insider were mixed on whether founders or venture capitalists would really be too high-minded about Saudi money.

Read more: I spent 24 hours living on SoftBank services like Uber, WeWork, and Oyo. It revealed some flaws in Masayoshi Son's grand $100 billion investment vision.

One investor, who backs both European and US startups, felt founders were thinking more about the origins of funding. "Founders are asking, 'Where does this money come from?'" the person said.

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But another European investor simply said "No" when asked, and said venture capitalists were currently more concerned with taking money from China, thanks to greater scrutiny on Chinese investments both in the US and Europe.

A third investor added: "Sadly the money goes deeper than direct investments... How many startups do you know that would refuse the SoftBank Vision Fund? That's mostly despot money."

The person added that scrutinizing the big funds of funds, which back venture capital firms, might expose lots of unethical money. "Plenty of oil money in the mix if you go up many of those chains."

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