Sovereign wealth funds have increasingly poured money into technology startups in recent years at earlier stages of the business cycle, and they have also been making such investments more directly. This has implications both for other investors and the companies they own stakes in. 

A growing number of large investors – most notably Asian SWFs and Japan’s Softbank (heavily backed by Saudi Arabian state capital) – have been sharply ramping up their involvement in early-stage tech deals in the past few years (see chart below). This is a trend highlighted by AsianInvestor in late 2017.

SWFs executed a record-high 63 deals across different stages of venture financing in 2018, according to data published by the International Forum of Sovereign Wealth Funds in May. That was nearly quadruple the 17 in 2015. The sharpest growth came in the earlier (A to D) venture capital funding rounds, and activity has been dominated by Asian state funds.

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Moreover, SWFs are now leading or co-leading more venture transactions than ever before: 35 funding rounds last year, more than twice the 16 seen in 2017 and more than quadruple the eight that occurred in 2015. 


This acceleration underscores a shift in sovereign wealth funds’ approach away from conventional fund commitments towards more direct and co-investment in tech (as well as in other asset classes), said Bernardo Bortolotti, director of the sovereign investment lab at Bocconi University in Milan.

SWFs are changing their approach by setting up separate platforms for tech investing, because deal sizes in early-stage investments are relatively small; typically under $10 million. Vertex Ventures, owned by Singapore's Temasek, is a well-established example. 

What’s more, a growing number of sovereign funds have been setting up offices in San Francisco in recent years, to be closer to Silicon Valley. Temasek did so in early 2017, Abu Dhabi's Mubadala in late 2017. And Qatar Investment Authority said late in the same year that it would do so, while Saudi Arabia’s Public Investment Fund indicated the same plan in February this year. 

Asian SWFs – notably GIC and Temasek – have been the most active among their peers in global technology investment, and the trend is growing. In 2018, 17 SWFs participated in venture deals, compared to just seven before 2014, according to a study released in April by Spain’s foreign trade institute Icex and the Madrid-based IE Business School. 

Pension schemes have also been getting in on the tech action. Australian superannuation funds such as Hostplus and First State Super have ramped up their commitments to VC managers in the past few years, as AsianInvestor reported in its December 2018 / January 2019 magazine issue. According to data provider Preqin, 160 venture deals worth A$2.2 billion were done in Australia last year, a 77% increase over 2017.

And then there is Softbank. After shaking up the late-stage tech market with its $93 billion Vision Fund, the Japanese tech-focused conglomerate is said to be readying a $500 million ‘acceleration fund’ to invest in early-stage tech ventures. 


All this has affected how entrepreneurs finance themselves. Just a few years ago, a tech company would aim to go public quickly to raise capital to fund growth and potentially also to raise its profile, Chris Emanuel, co-head of the technology investment group at GIC, told AsianInvestor in late May. 

Chris Emanuel, GIC

Today, however, there is enough private capital to fund growth, he said, so firms are staying private roughly twice as long as in past cycles, and late-stage valuations have risen materially. (Though there are signs that momentum is tailing off in China for a number of reasons.)

As a result, share prices have been more likely to decline post-listing. The shares of cab-hailing apps Lyft and Uber, for instance, plunged after they conducted initial public offerings in March and May, respectively. The latter has since recovered, but the former remains well below its float price.

This holds true for Asia too. “There is a general sense in the market that the value achieved in many late-stage investments in Asian tech companies at IPO is not the same as it was 10 to 20 years ago,” said Effie Vasilopoulos, a Hong Kong-based partner at law firm Sidley Austin.

There are any number of reasons why tech IPOs may not perform well, particularly in Asia, but investors ultimately are advised to be wary.

This story was adapted from a feature that originally appeared in AsianInvestor Summer 2019 edition. Look out for a follow-up story on how family offices are adapting to the changing tech investment landscape.