MBS, Softbank, and Israeli Relations

December 3, 2018

 

Despite all the noise in the media (and how the markets initially reacted) to the significant stake Saudi Arabia has in Softbank’s 100-billion-dollar Vision Fund, Silicon Valley will continue to embrace money from the Gulf. From a geopolitical perspective, Saudi Arabia will retain its place as the dominant Arab Sunni country, not just in countering aggressive Iranian ambitions in the region but as an intermediary in any possible move forward with a possible Israeli-Palestinian peace plan. 

 

Softbank’s CEO Masayoshi Son must have appealed to MBS’s (Crown Prince Mohammed bin Salman) millennial, tech-focused outlook when raising the sum needed to anchor his fund, but what he underestimated was the Crown Prince’s legacy and his family’s hold on power. Both cultures have an epic view of history: Son’s view of Japan goes back to its seafaring ambitions of the 1600’s, while the Saudis (Samuel Huntington’s work on the Arab world’s concept of time is excellent) see themselves as the guardians of Islam’s most holy sites, (and probably the richest family in the Middle East) tracing their lineage to the time of Muhammad in the 700s.

 

Trumpian Relation 

 

From the tech community’s perspective, we are not so far removed from the similar occurrence when Peter Thiel openly aligned himself with the current administration (though his political views had been well-known for some time) that drew almost universal public condemnation from other Silicon Valley heavyweights to recipients of Founder’s Fund capital. Silicon Valley has, for the last few years, been flooded with dubious sources of funding such as Chinese investors and Russian oligarchs. A closer look reveals just how much Saudi money is invested in Silicon Valley growth startups (as LPs in a number of SF based VCs). Typical of the political echo chamber in SF, we’ve always been just one Google search away from Saudi Arabia’s human rights record (when one actually cared to look), but three factors really propelled the Khashoggi story into the mainstream press:

 

1.) A journalist was murdered, one of the media’s own, thus violating an unspoken rule. 

 

2.) Trump’s close relationship with the Saudi royal family, on which he is leaning on for any region stability (ex., post-Syrian Civil War and booting Iran from the country). 

 

3.) The general disappointment with MBS; the world thought the millennial monarch was above killing political dissents and journalists, but apparently gangland style murders are still in style in the region. We’ve heard this Western wishful thinking before when it comes to the Middle East: “Bashar Assad is a moderate, he’s a London based optometrist”, “the Arab Spring will usher in democratic values and sweep away decades old dictatorships”. Indeed. We’re all products of our environment, and eye to for an eye (or two) is still the common gut instinct in many parts of the region.

 

The Startup Nation Narrative 

 

Bibi Netanyahu was also on the receiving end of widespread international outrage after the administration's decision to move the American embassy to Jerusalem. This was felt very intensely in the vocal condemnation of the death toll of rioting Palestinians on the Gaza Strip border; while Israel faces disproportionate condemnation in it’s struggle with the Palestinians, this time it did not die down after a few days. This was likely a result of the international community’s (and media) desire to punish the Prime Minister for his cozy association with the President. 

 

The Startup Nation narrative has been a focus of Bibi’s, the argument being that the Startup Nation provides the world with such highly valuable technologies such as cyber security and AI that the Palestinian cause can be marginalized. He has made a convincing argument and evangelized the Startup Nation to the country’s economic benefit, though the Israeli ecosystem (in parallel to Silicon Valley) remains in vocal opposition to his government’s right-wing policies.  

 

Among the relations that have improved are those with the Gulf states. Does that mean Israeli fund managers are going to be flying to Riyadh for LP money? Not likely, at least in the near future. But they can take solace in knowing that some of their investments who possess Israeli DNA; Compass, Lemonade, and WeWork are some of the biggest bets that Softbank has taken. 

 

 

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