‘Humbled’ VCs Turn to Middle East For Funding

As funding evaporates, venture capital firms are seeking an oasis in the Middle East.

Groups like Andreessen Horowitz, Tiger Global and IVP have in the past weeks sent teams to Qatar, the United Arab Emirates and Saudi Arabia, the Financial Times (FT) reported Wednesday (April 12), citing people with knowledge of the visits.

With traditional backers facing a downturn, these venture capital (VC) firms are hoping the Middle East’s massive sovereign wealth funds can come to the rescue. Officials in the gulf, meanwhile, are looking for a way to diversify their economy, the FT notes.

It means some VCs have had to walk back their decision to shun Saudi Arabia over worries about the kingdom’s human rights record, the report said.

“We came to San Francisco looking for them in 2017. Now . . . everyone is coming to [us],” Ibrahim Ajami, head of ventures at Mubadala Capital, a $6 billion offshoot of the sovereign wealth fund in Abu Dhabi, told the FT. “The tech correction has humbled the industry.”

The news comes on the heels of a recent Crunchbase report showing that global funding had plummeted 53% in the past year.

In the European startup space, it’s meant a brutal start to 2023, with companies raising $10.6 billion in the first quarter of the year, down 66% from last year.

When VC funding reached a record high in 2021, competition from major U.S. venture firms piling into European rounds heated, posing a challenge to Europe-focused VC firms.

It’s a struggle that Rob Moffat, partner at U.K.-based VC firm Balderton Capital, spoke of in an interview with PYMNTS in February.

“Our competition has increased over the last couple of years, [and now] it’s really justifying to founders why they should take money from us, rather than from a big-brand U.S. firm with a London office,” he explained.

However, the Crunchbase report said U.S. venture offices had begun easing back. François Veron, founder of French VC firm Newfund, estimated that 5% of funding for startups in his country came from U.S. firms during the first quarter of 2023, compared to 40% last year.

Last month’s collapse of Silicon Valley Bank (SVB), which either funded or served almost half of venture-backed companies and many VC firms, shook a sector that was already struggling with a downturn in funding.

“Just over a year ago, the startup funding landscape was basking in the glow of a sizzling 2021 and hoping to carry the momentum into the new year,” PYMNTS wrote recently. “However, at the beginning of 2023, funding for startups has considerably slowed down, almost to a crawl.”