State-owned investors ramp up startup bets in first three quarters: Global SWF

Singapore

STATE-OWNED Investors (SOIs) are pumped up about startups, investing US$14.9 billion across 256 venture capital (VC) deals in the first three quarters of this year.

This exceeds the US$8.9 billion that SOIs sank into 118 VC deals in all of 2020, according to Global SWF, which tracks data on SOIs, including sovereign wealth and public pension funds.

Temasek is among the SOIs especially active in the VC space, Global SWF noted in its October newsletter. The state investor typically participates in startup deals either in its own name, or via Vertex Ventures, a network of funds where Temasek unit Vertex Holdings is anchor investor.

Other SOIs that are often seen in Series A and B deals of major startups are Abu Dhabi's Mubadala Ventures and OMERS Ventures, the VC arm of the Ontario Municipal Employees Retirement System.

"The most striking feature of venture capital investments is that SOIs are getting in earlier and earlier, providing as little as US$5 million in the startups' first financing rounds," Global SWF noted in its newsletter.

This indicates that SOIs increasingly prefer to participate in deals directly, alongside VC giants such as Sequoia and Kleiner Perkins, rather than investing in VC funds.

Another big trend this year is the rising preference among SOIs for pre-IPO (initial public offering) rounds, which are often seen as having lower risk and a shorter horizon to realise returns.

Global SWF data shows 55 instances of SOIs investing in Series F or later rounds in the first three quarters of 2021, up from 12 instances in the whole of 2020.

As The Business Times previously reported, both Temasek and GIC could see sweet gains, as many of their portfolio tech companies head for the public markets.

Most recently, GIC-backed Amplitude hit a US$5.6 billion valuation after going public on the Nasdaq late last month. The analytics company was valued at US$4 billion after GIC invested in June.

Unlike in the past, venture deals are no longer centred on Silicon Valley. The US represented almost half of all capital invested by SOIs in VC last year. But the US is only represented in a third of the deals in 2021 thus far.

The hottest markets are "without a doubt" China and India, which have attracted 40 per cent of the total capital, noted Global SWF. Singapore is also a popular destination, alongside other developed economies such as Canada, the UK and France.

SOIs are also deal-hunting in more markets. In the first three quarters of 2021, SOIs backed startups of 28 different countries, up from 16 last year.

"It is very difficult to predict an industry that is changing as rapidly as VC, but it is evident to us that SOIs do not want to be missing this train," Global SWF said.

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