* Sovereign funds stepping up investments in private tech
firms
* Big deals support high valuations
* Ten out of world's 80-plus SWFs active in private tech
market
By Eric Auchard and Saeed Azhar
FRANKFURT/SINGAPORE, June 7 (Reuters) - A succession of
funding deals by deep-pocketed sovereign wealth funds have
thrown a life preserver to some of the world's biggest private
tech firms whose high valuations have come under scrutiny in the
past year.
Saudi Arabia and other Gulf States along with state-backed
investors in Singapore and China have ploughed money into hot
tech investments such as ride-sharing company Uber UBER.UL and
Chinese Internet giant Alibaba (NYSE:BABA) and its private affiliates.
With overall funding for start-ups slowing down by a third
to $25.5 billion in the last two quarters, according to data
from CB Insights, high-profile ventures are turning to
government funds or institutional money to create "private IPOs"
rather than to venture capitalists or chancing public listings.
These capital injections have helped to keep valuations
high as other tech ventures such as those of cloud storage
service Dropbox or Indian takeaway food ordering app Zomato have
been marked down by some earlier backers.
"Sovereign wealth funds are well placed to make large
bets... given their deep access to capital and their risk
appetite for growth investments," said Jacqueline Chan, a
Singapore-based partner at law firm Milbank, who has advised
sovereign wealth funds.
Saudi Arabia's Public Investment Fund said last week it
invested $3.5 billion in Uber, Silicon Valley's most highly
valued private company. At $62.5 billion, the car-sharing firm
is worth more than the stock market capitalisations of
automakers BMW or GM and close to VW, Daimler and Ford.
Also last week, Singapore's two big government investors
bought $1 billion of Alibaba Group shares, while in April, China
Investment Corp, took part in a $4.5 billion round in Alibaba's
financial services affiliate ANT Financial with other investors,
marking the largest ever funding round in a fintech firm.
FUNDRAISING ARMS RACE
Technology stakes still make up only a tiny fraction of
investment portfolios for sovereigns, with most sticking with
conventional fixed income and equity investments and long-term
projects like hotels, shopping centres and ports.
And only about 10 of the world's 80 or more sovereign funds
have made sizeable investments in tech ventures so far according
to market research firm Sovereign Wealth Fund Institute.
"It becomes a waste of time to write small cheques for funds
of this scale," SWF Institute president Michael Maduell said.
But the pace of sovereign investment in tech ventures is
picking up with more than two dozen in the past year.
Singapore state fund Temasek has invested in more tech
ventures than all other sovereign funds combined - more than 70
dating back to the dot-com era.
Temasek has backed Airbnb, Chinese Uber rival Didi Chuxing,
and China Internet Plus Group, the country's largest online
group buying site, as well as Alibaba.(http://reut.rs/1stwUvu)
"New, disruptive, technologies and platforms are very much
part of our investment focus," Temasek spokesman Stephen Forshaw
said.
The new sovereign investments have had an outsized impact on
the private market for new companies, long dominated by venture
capitalists in Silicon Valley and Israel and more recently, in
China, India and Europe.
Top venture capital firms such as Accel, Peter Thiel's
Founders Fund, Andreesen Horowitz, Sequoia Capital, Index
Ventures have responded by raising big new funds to stay in the
game by focusing on earlier, riskier stages of funding than
sovereign funds are ever likely to do due to their size.
INFLUENTIAL
Singapore's other big sovereign investor GIC manages central
bank reserves and has traditionally invested with private equity
firms, but lately has been going alone on private equity-type
tech investments such as U.S. payments provider Square (NYSE:SQ) SQ.N , a
year ahead of its late 2015 IPO.
"Technology is a very important part of our investment
universe, and will be increasingly so," said Lim Chow Kiat,
GIC's deputy president and group chief investment officer. "It's
critical for GIC to stay involved as all these changes are
producing big opportunities as well as risks."
Sovereign funds in oil-rich Gulf states have also begun to
take positions in tech ventures, breaking with a prior focus on
real estate deals.
Saudi Arabia's $3.5 billion stake in Uber was the largest
ever single private investment in a tech company while the
Kuwait Investment Authority took the lead this year in a $165
million private equity funding for struggling U.S. wearable
devices maker Jawbone, one of seven tech and healthcare ventures
it has made in the last two years. Qatar Investment Authority
invested in Uber and Indian ecommerce firm Flipkart in 2014.
"While sovereign wealth funds are not going to be in every
tech deal, they are starting to exert their influence," Maduell
said. "They have definitely begun to get their hands dirty."
Nevertheless, tech ventures are still too risky for some
sovereign funds, with mandates to preserve capital and ensure
predictable returns.
Norway's $865-billion fund, the world's largest sovereign
wealth investor, is a major backer of publicly traded tech
stocks such as Apple Inc AAPL.O , but it can only invest in an
unlisted company in the final run up to a public offering.
Restrictions on private investments mean it passed on an
offer from Facebook FB.O to invest several years ago.
"Facebook made contact and asked us whether we wanted to be
a shareholder. We said no," the fund's CEO, Yngve Slyngstad,
told Norwegian daily VG a week ago.