In the Tesla drama, Saudi Arabia reminds Silicon Valley of its weight
The Saudi Arabian government cannot make any Silicon Valley hotshot do anything. But they can make it awfully appetizing.
The news that the Saudi government had essentially convinced Elon Musk to weigh taking Tesla private served as another reminder that Riyadh is an ascendant, underrated power player in Silicon Valley finance. If Musk and the Saudis manage to take the $60 billion company off the public markets, it will embolden a sovereign wealth fund that, despite its charm offensive in recent years, is still working to secure its footing in Americaâs old-guard money world.
The Saudis have not been quiet about their ambitions to play with the big boys in Silicon Valley over the last three years. The countryâs $3.5 billion investment in Uber was not a splash but the opening of a gusher, an unsaid hello from Saudi Arabia to U.S. companies that it is a willing investor if they will help move the Saudis off their dependence on oil.
Soon after came Saudi-sized checks into the $100 billion SoftBank Vision Fund, the most ambitious investing project in Silicon Valley today. Americaâs jet-setting class toasted the country last October at what has become a new stop on the high-finance conference calendar. And, of course, there was this yearâs visit by Mohammed bin Salman, the countryâs emissary to Silicon Valley, who was greeted with glitz and glam at Americaâs most prominent corporations.
Donât be surprised if the Saudi sovereign wealth fund soon opens an office in San Francisco or on Sand Hill Road.
These Saudi moves havenât been universally embraced. Yes, money knows no boundaries, but some CEOs and venture capitalists do grumble about whether a country with a shoddy human rights record should be holding the purse strings in the American economyâs most vibrant, innovative sector. The kicker: These complaints are made very, very privately â" a full admission if there ever was one that Saudi Arabia is going to stay part of the U.S. financial firmament and isnât worth upsetting.
If the Saudis are indeed able to successfully finance a take-private of Tesla, it would take that understanding one step further: Not only are they a viable pool of cash for cash-seekers, they are building considerable leverage in Silicon Valley deal-making. Dumb, desperate money â" so often the caricature of foreign investors trying to make a buck in the U.S. â" this is not.
List en to how Musk described the process in his latest statement:
Going back almost two years, the Saudi Arabian sovereign wealth fund has approached me multiple times about taking Tesla private. They first met with me at the beginning of 2017 to express this interest because of the important need to diversify away from oil. They then held several additional meetings with me over the next year to reiterate this interest and to try to move forward with a going private transaction. Obviously, the Saudi sovereign fund has more than enough capital needed to execute on such a transaction.
Recently, after the Saudi fund bought almost 5% of Tesla stock through the public markets, they reached out to ask for another meeting. That meeting took place on July 31st. During the meeting, the Managing Director of the fund expressed regret that I had not moved forward previously on a going private transaction with them, and he strongly expressed his support for funding a goin g private transaction for Tesla at this time. I understood from him that no other decision makers were needed and that they were eager to proceed.
Just because Musk has âfunding securedâ â" in the perhaps-soon-to-haunt-him words of his first bombshell tweet â" does not mean that he will accede to the Saudisâ coaxing. And Musk obviously has his own independent reasons to at least be open to shielding Tesla from the public markets. But the Saudis, in Muskâs retelling, have figured out how to patiently, skillfully work one of Silicon Valleyâs most headstrong CEOs.
The Saudis have not totally blended in. There are still unique regulatory, political and financial risks to taking money from overseas investors that will never evaporate entirely. But they are showing muscle and projecting strength that makes them more and more indistinguishable from Silicon Valleyâs other homegrown power players.recode_divider < h2> More From Recode recode_logomark