The amount of money sovereign wealth funds across the Middle East and Asia are ploughing into European tech is increasing sharply, analysis by Sifted shows.
Singapore’s GIC was the most active sovereign fund in terms of capital deployed last year globally. It participated in rounds in Europe totalling $5.6bn last year, a 273% increase on the figure in 2020.
It's hard to tell precisely how much of that total the GIC provided, but it gives an indication of their ramped up European investment.
The UAE’s Mubadala fund, the Qatar Investment Authority and Singapore’s Temasek participated in European rounds totalling 380%, 140% and 106% more in 2021 than 2020 respectively.
The Abu Dhabi Investment Authority made the biggest jump — from participating in rounds totalling $22m in Europe in 2020 to $1.2bn in 2021.
The ramped-up European focus from sovereign wealth funds matches the general VC market. More and more non-European VCs are pumping cash into the continent — take US firm Tiger Global, which made 50 European deals last year, or fellow American firm General Catalyst, which opened a European office in late 2021.
Sovereign wealth funds, which are notoriously secretive, have backed some of the biggest names in Europe’s ecosystem.
Last year, Temasek backed British cybersecurity Snyk in a $530m round and participated in a $450m round for events platform Hopin. Among others, Mubadala has backed Flink, Getir and Glovo; and Qatar has written cheques for Infarm and Starling Bank.
Singapore’s GIC has a penchant for fintechs, backing Klarna, N26 and Checkout.com, among others.
No longer dependent on Silicon Valley
Victoria Barbary, from the International Forum of Sovereign Wealth Funds, says the trend is part of an invigorated focus on tech globally by sovereign funds.
“Sovereign wealth fund direct investments in European technology firms, particularly in software and services, have been growing for five years. This is part of a wider trend of investors allocating more capital to technology firms globally,” she says.
“As a developed market with a skilled workforce and a mature enabling environment, Europe has created many companies for which there is greater investor appetite, particularly in light of the pandemic.”
An increasing number of sovereign wealth funds that have a strategic mandates [...] and technology is playing a more important role in catalysing economic development
Diego Lopez, who runs Global SWF, a data platform tracking fund investments, says the funds’ focus on Europe also represents a move away from Silicon Valley.
“We have noticed a decrease in dependency on Silicon Valley when it comes to VC and technology investments by sovereign funds,” says Diego Lopez. “This is for diversification purposes, but also because of inflated prices in the US.”
Bigger rounds — and less government involvement
The funds are backing bigger and bigger rounds in Europe, Lopez says. “It’s due to a desire to back startups through the company lifecycle to IPO stage.” They’re also increasingly willing to write smaller cheques, going as low as $5m.
The level of government involvement in the investment decisions of countries’ funds is also changing, Lopez says.
In 2016 and 2017, the Saudi Public Investment Fund and Mubadala made commitments to SoftBank, which Lopez says were driven by government relationships.
Now that the funds are increasingly making their investments directly and even setting up dedicated VC teams, further removed from government guidance.
The majority of funds also subscribe to the "Santiago Principles", which dictate that fund managers can make decisions independently of the government that own them.
“However,” Barbury says, “there are an increasing number of sovereign wealth funds that have a strategic mandate; to develop specific sectors in their domestic economies or to invest in sectors abroad that a government wants to develop at home.
The Abu Dhabi Investment Authority jumped from $22m invested in Europe in 2020 to $1.2bn in 2021
"Technology is now playing a more important role in catalysing economic development, so it may be that this is becoming more important in the mandates of this type of funds.”
So besides the big cheques they’re willing to write, what’s in it for European startups to work with non-European sovereign funds?
They can bring long-term, patient capital — and open up useful connections.
“Those sovereign wealth funds that do invest directly, rather than through funds, often develop specific sectoral or geographical expertise, and broad networks that they can leverage to benefit the company,” says Barbury.
More and more European startups are maturing to the stage where they're after the big rounds which sovereign wealth funds have the capital to back. Combined with the continuing need for wealth funds to diversify their investments, it looks sovereign wealth funds' love of European tech is set to continue into 2022.