Still, while investors in the Middle East and U.S. don’t doubt Saudi Arabia’s determination to become a more serious player in technology investing, some of them say AI startups may not want to start counting on that cash just yet. The skepticism stems from the fact that the country has already pledged to fund a number of costly projects, including its $500 billion futuristic city, Neom, and Qiddiya, an entertainment hub it’s building outside the capital of Riyadh with funding from Public Investment Fund, Saudi Arabia’s sovereign wealth fund. As a result, PIF’s cash reserves have dropped to $15 billion as of September, their lowest levels since December 2020, The Wall Street Journal reported.

Peter Jädersten, founder of Jade Advisors, which helps investors raise money from the Middle East, said there’s a growing sense of competition between Saudi Arabia and neighboring countries like the United Arab Emirates over who can diversify the economy away from petroleum faster, in part through headline-grabbing AI plans. Jadersten said it will be hard to know for sure how big Saudi Arabia’s AI fund will be and over what span of time the country plans to invest it, because its funds aren’t as transparent as those in the U.S. and elsewhere.

“If you announce that you’re going to raise $40 billion, how does the outside world know that they actually earmarked $40 billion?” said Jädersten, referring to the news about Saudi Arabia’s plans for the fund, which The New York Times first reported.

Representatives from PIF didn’t respond to a request for comment.

Whatever the size of the AI fund ends up being, funds associated with the Saudi government are making more direct investments in the tech sector than in the past. Sanabil, which manages over $100 billion in assets, has become especially active in getting the word out about its desire to take more direct stakes in companies, particularly those in AI.

Sanabil representatives recently completed a U.S. road show, with stops in Los Angeles and Miami, where they discussed Saudi Arabia’s AI ambitions with U.S. investors and entrepreneurs, according to people familiar with the talks. Among the startups they’ve recently invested directly in is Nile, an AI networking startup co-founded by Cisco’s ex-CEO, John Chambers.

The promise of more Saudi Arabian cash comes at a moment when AI startups are showing a voracious need for capital to fund the development of large-language models, which require huge upfront and ongoing costs. OpenAI CEO Sam Altman has said his firm may need to raise as much as $100 billion to keep up with computing costs, a vast sum expected to involve sovereign wealth funds.

“Saudi Arabia is going through a transformation and an awakening,” said Fahad AlSharekh, a tech investor in Kuwait. “They have focused on reinventing themselves on many, many fronts.”

Sovereign AI

That reinvention has been made possible in part by a gradual dimming of outrage in the U.S. over the kingdom’s hand in the 2018 murder of Saudi dissident journalist Jamal Khashoggi. Many founders and VC investors publicly distanced themselves from the country after the grisly killing. But that distaste began to fade a couple of years ago.

In one sign of that warming, Sanabil began disclosing its investments in dozens of U.S. VC firms, including Andreesseen Horowitz, Coatue Management, Greenoaks Capital Partners and Insight Partners, on its website, The Information reported last year. The investments gave Sanabil indirect exposure to many of the nation’s top startups but avoided attracting public attention, since VC funds rarely disclose their financial backers, known as limited partners.

The contacts with these powerful VC firms laid the groundwork for the firm to eventually begin investing directly in startups, several venture capitalists that raised money from Sanabil said. And that helped shape its AI strategy.

Last year, Sanabil formed a task force focused on AI to help it determine where to invest. As part of that effort, it spoke to several investment firms it had partnered with about their AI strategies. The goal was to understand the “house views of different market participants and then building our own house view and then really pursuing that from an investment perspective,” said Sanabil’s Al Mana at the Los Angeles conference last month.

“I think we’re in the first innings of doing that,” he said.

Getting closer to startups through direct investments stands to give Sanabil more power over the direction of those companies—for example, by influencing them to open offices within its borders or strike business deals with local companies.

In one such case, Sanabil and March Capital, a VC fund backed by Sanabil, co-led a $175 million round in Nile last August. Then, last month, Nile announced a joint venture with Saudi Telecom that will enhance “Nile’s market presence in Saudi Arabia,” CEO and co-founder Pankaj Patel, a former Cisco executive, said in a press release.

“We do not feel any pressure to expand in the Middle East because of our relationship with our investors, but the nature of our solution—AI-driven networking for the enterprise—makes it an excellent fit for markets focused on new construction opportunities,” Patel said in a statement to The Information. “The Middle East overall, and the Kingdom of Saudi Arabia in particular, are very attractive to Nile.”

Expanding the number of AI researchers in Saudi Arabia would help the country pursue what some people in the country call “sovereign AI”—an ability to produce AI through local infrastructure, such as data centers and energy.

Growing Deal Count

Still, some companies and investors are concerned with the U.S. regulatory scrutiny investments from the Gulf nation could attract.

In November, Prosperity7, a VC subsidiary of the Saudi Arabian Oil Co., sold its shares in U.S. AI chip startup Rain following pressure from the Biden administration and a review by the Committee on Foreign Investment in the United States. And in March, executives at U.S. AI startup Anthropic said they had ruled out investment from Saudi Arabia, citing national security concerns, according to a CNBC report.

But those concerns aren’t likely to slow the Saudi fund’s appetite—or the demand from startups for capital. Sanabil’s Al Mana said at The Montgomery Summit that he frequently gets up to 200 inquiries about capital a day. That constant drumbeat of curious founders and venture capitalists has overwhelmed some limited partners in the region.

“I just do not have the resources or time to reply to every single email,” said Al Mana.

Among the U.S. companies to raise funding from Sanabil in the last year are San Jose–based enterprise software company Acceldata and Databricks, a data and AI company valued at $43 billion.

Since 2021, Sanabil has participated in 62 direct VC deals, including about 20 investments in the U.S., according to PitchBook. That’s a huge increase from 2017 to 2020, when it completed only three VC investments. PitchBook doesn’t have estimates for how much money Sanabil has put into those startups.

Sanabil’s Middle East rivals are also looking to increase their direct investments, after having spent the last decade or more learning the ins and outs of tech investing.

Mubadala Investment Co., the $276 billion sovereign wealth fund of Abu Dhabi, over the last decade executed a playbook similar to the one Sanabil is pursuing. Mubadala forged relationships with U.S. VC funds and then backed U.S. companies like banking app Chime and Waymo, Google’s self-driving–car unit. In 2017, Mubadala opened an office in San Francisco and said it would go after even smaller deals, an unusual move for a sovereign wealth fund.

And the Qatar Investment Authority recently decided it would make more direct investments in tech, The Information reported. In 2022, QIA invested $375 million in Elon Musk’s Twitter takeover and led a $200 million financing for Boston-based cybersecurity company Snyk.

“When you have significant equity in companies, you can at least have access to information and you can understand what’s happening abroad,” said Tariq Qaqish, CEO of Salt Fund Placement, which helps international fund managers raise money from Middle Eastern sovereign wealth funds and family offices.