Big deal: Saudi Arabia signs up to $100bn SoftBank fund

The Saudi Arabian government will commit up to $45bn to the SoftBank Vision Fund, while the corporate is set to invest $25bn, with the remainder to be secured from other backers.

The government of Saudi Arabia joined forces with Japan-based conglomerate SoftBank on Friday to launch a $100bn vehicle dubbed SoftBank Vision Fund.

Saudi Arabia is expected to provide, over the next five years, up to $45bn through its sovereign wealth fund Public Investment Fund (PIF), under the terms of a non-binding memorandum of understanding.

SoftBank, meanwhile, hopes to inject a total of $25bn over that period. The remaining $30bn in capital will come from "large global investors", who remain undisclosed for now.

The SoftBank Vision Fund will back companies in the technology sector internationally and will be managed by an unnamed subsidiary of SoftBank in the UK.

The fund will be led by Rajeev Misra, head of strategic finance at SoftBank, who will be assisted by Nizar Al-Bassam, a former banker at financial services firm Deutsche Bank, and Dalinc Ariburnu, a former partner at investment bank Goldman Sachs. A range of experts from PIF are also engaged, though they have not been named.

The move by PIF, established in 1971, comes amid a period of change for the sovereign wealth fund, which traditionally focused on investments in oil, infrastructure and financial services.

Indeed, in the recent past PIF has increasingly supported projects that would help the kingdom reduce its dependence on oil revenue, as part of its strategy called Vision 2030.

That initiative is also supported by other entities in Saudi Arabia, such as science organisation King Abdulaziz City for Science and Technology, which reports directly to the country's prime minister. The organisation launched a $120m fund in January 2016 to back entrepreneurs in the digital sector.

PIF itself, meanwhile, moved to sell a 5% stake in its wholly-owned oil company Aramco for $106bn in April 2016.

The sovereign wealth fund's most notable investment, however, came in June 2016, when PIF put $3.5bn into US-based ride-sharing app developer Uber at a valuation of $62.5bn. The deal is the single largest cash injection in Uber, though it is only a small part of PIF's $750bn in US assets.

The fund is also an intriguing move by SoftBank. The corporate, founded in 1981, might be best known for its telecoms operations – it owns, among other companies, US-based mobile phone network and internet services provider Sprint – but has also garnered a reputation for savvy early-stage investments in the technology sector.

SoftBank has made such commitments in e-commerce giant Alibaba, internet company Yahoo, and media businesses Buzzfeed and Huffington Post. One of its larger bets was the $31bn acquisition of chip maker ARM in July 2016 as it seeks to enter the internet-of-things sector.

The SoftBank Vision Fund, should it reach its target size, would tower above the entire venture capital industry – the Wall Street Journal noted that VC-backed companies raised a total of $130.9bn globally last year.

In fact, the fund would be able to purchase cloud computing company Salesforce, professional social network LinkedIn, social media network Twitter, videocamera producer GoPro and wearables manufacturer FitBit – and still have several billion dollars left to invest elsewhere. The fund even outstrips SoftBank itself, which has a market capitalisation of $75bn.

Even when spread out over the five-year term of the fund, $20bn each year would still account for between a fourth and a fifth of venture capital activity.

VC firms such as Greylock Partners, which raised a $1bn fund last week, or Technology Crossover Ventures, which closed a $2.5bn fund in August, are now dwarfed by Saudi Arabia's and SoftBank's ambitions.

US tade body the National Venture Capital Association noted that US-based venture capital firms raised only $22.8bn in the first half of 2016, and even a 2014 peak of nearly $31bn across 274 funds is still less than a third of the SoftBank Vision Fund.

Deputy Crown Prince Mohammed Bin Salman, chairman of PIF, said: “The Public Investment Fund is focused on achieving attractive long-term financial returns from its investments at home and abroad, as well as supporting the kingdom’s Vision 2030 strategy to develop a diversified economy.

"We are delighted to sign this memorandum of understanding with SoftBank, given the long history, established industry relationships and strong investment performance of SoftBank and Masayoshi Son.”

Masayoshi Son, chairman and chief executive of SoftBank, added: “With the establishment of the SoftBank Vision Fund, we will be able to step up investments in technology companies globally. Over the next decade, the SoftBank Vision Fund will be the biggest investor in the technology sector. We will further accelerate the information revolution by contributing to its development.”

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