Gulf Cooperation Council nations are undergoing rapid transformations as their governments and the private sector jointly develop local markets through technology ecosystems, guided by national programs.
Sovereign wealth funds and large investors are key actors in these plans — better known as visions — to provide critical funds to support existing and emerging firms.
The International Forum of Sovereign Wealth Funds has estimated that in 2020, sovereign wealth funds including those in Saudi Arabia, Kuwait, and the UAE, invested around $12.7 billion in local companies and projects — more than three times the amount they invested in 2019.
The Public Investment Fund, Saudi Arabia’s national fund, has seeded the launch of several giga-projects such as NEOM, a $500 billion city-state, to be run entirely on renewable power and export green energy. The PIF has also set up subsidiaries in emerging sectors, such as the Saudi Company for AI, which will support local companies in the Kingdom’s AI ecosystem. Similarly, ADQ, a UAE sovereign wealth fund, has funded the setup of local companies such as Silal, which aims to diversify the nation’s food sourcing and stimulate the local agri-food industry, to strengthen the country’s food security.
As national wealth funds and principal investors expand further and launch their own companies, venture builder firms have become key to their efforts. These firms, sometimes referred to as startup studios, help scale up young companies, by offering advisory and operational support.
Today, over 500 venture builders operate around the world. In 2019, the Ontario Teachers’ Pension Plan, Canada’s largest single-profession pension plan, set up Koru with a mandate to support the pension fund’s portfolio companies with ideas, incubation, and the ramp-up of new digital businesses.
Well-designed venture builders can help national wealth funds cultivate innovative firms and increase deal flows. But to do this, these mentor firms need to access the latest technologies and good management, to drive operations, boost innovation and provide better customer experiences. At the Boston Consulting Group, we refer to the firms as bionic companies.
According to our Digital Acceleration Index survey, based on 2,246 companies in Asia, Europe, and the US, bionic companies are 2.2 times more likely to have over 10 percent revenue and enterprise value growth compared to digital laggards.
Venture builders can usefully draw on intelligence from across a national wealth fund’s group of companies to research market data or analytics. However, startup studios demand a multidisciplinary management team that brings together financial roles with seasoned hands in design, programming, engineering, and agile operations. These firms can be promoted as an up-and-coming innovation hub, or be aligned with government-sponsored national research and innovation centers.
A sovereign wealth fund is expected to generate returns and increasingly support local economies. A startup studio can provide the fund with access to potential unicorns and high-growth ventures that otherwise might pass it by.
As principal investors and related funds develop a broader more involved approach to economic development, the venture builder may become one of their primary tools. There may come a day when young entrepreneurs and established sovereign wealth funds think of each other first when they consider raising capital.