CEO of Saudi Arabia’s newest technology investment fund STV shoots for the moon

Updated 10 January 2019

CEO of Saudi Arabia’s newest technology investment fund STV shoots for the moon

  • Abdulrahman Tarabzouni typifies the new style investor who is transforming the economy of the Kingdom
  • Over the past eight months, STV has scanned around 500 investment opportunities across the tech spectrum

"We pursue the moonshots,” said Abdulrahman Tarabzouni, but he was not taking about the space industry.

Tarabzouni is the chief executive and managing director of Saudi Arabia’s newest technology investment fund, STV. It began operations just over a year ago, independently managed but backed by the Kingdom’s communications giant Saudi Telecom, aiming to exploit opportunities in the technology sector, which has been identified as core to the Vision 2030 economic development strategy.

STV is looking for world-changing investment opportunities. “As venture capitalists, we are seeking ideas that improve things by a factor of 100, not by a factor of 10. I think that’s the same spirit that we see nowadays in Saudi Arabia from the top down,” he explained.

Tarabzouni typifies the new generation of Saudi business leaders who are leading the top-down transformation of the country and its economy, and the journey away from oil dependency.

An early career stint at Saudi Aramco and education at the Massachusetts Institute of Technology led to specialization in that part of the global economy where finance meets technology. After seven years with Google in California, Tarabzouni returned to Saudi Arabia to lead the venture with Saudi Telecom.

------------------------

Bio
Education

Massachusetts institute of technology, bachelors and masters in electrical engineering and computer science

Career

Member, Innovation leadership advisory board, Saudi Aramco

Financial trading technology analyst, Morgan Stanley

Strategy consultant, Oracle

Board member, Microsoft Board of the Future

Co-founder, Syphir tech company

Regional head of emerging Arabia and other roles, Google

Member of investment committee, Middle East Venture Partners

Various advisory roles at public and technology institutions in KSA

Board of directors, careem

Ceo and MD, STV

------------------------

The Kingdom is the perfect environment for the next phase of the digital revolution, he believes. “Saudi Arabia’s incredible resources, demographics and untapped potential to leapfrog its peers in terms of digital share of GDP, and the strong top-down will in the country to see this happen are strong enablers for a thriving venture ecosystem.

“We need to capitalize on the economic and strategic weight Saudi Arabia carries regionally and its ability to influence technology and consumer trends across the region, due to its market size and growing tech-user base,” he said.

Tarabzouni thinks the venture capital industry has a vital role to play in this transformation. “It is a balanced way of multiplying the number of players, companies, and ‘shots’ the ecosystem is taking to create new economic opportunities. Startups are new bets to create new forms of value, and venture capital firms are engines that can do this at scale with portfolios. If a country does it right, it ends up with a portfolio of transformative bets that will surely have some positive spill-over effect.

“Entrepreneurs are the best agents for such a task. They not only do this at scale, they are also the best positioned to go down the long tail of opportunities and diversify against the bulk of a country’s economic curve,” he said.

Saudi Telecom was the perfect partner for the venture. The largest telecoms company in the Middle East, it has moved quickly away from being an old-fashioned phone company to becoming an engine for digitization and innovation across the Middle East. “Their capabilities, assets, and aspirations are, without doubt, a powerful enabler for our joint objectives. This a partnership we are very proud of,” he said.

Over the past eight months, STV — with a $500 million war chest in which Saudi Telecom is the lead investor — has scanned around 500 investment opportunities across the tech spectrum including medical, media and ride-sharing sectors, and has led or co-led investments worth close to $250 million. Tarabzouni describes it as “a step change in the regional scale of deployed venture capital investments in such a short space of time.”

One of the most high-profile investments has been in the UAE based ride-hailing business Careem, in which Saudi Telecom was an early investor and where Tarabzouni sits on the board. 

Everywhere we look we see new opportunities to create market leaders that didn’t exist before and that will take a lot of investment.

Abdulrahman Tarabzouni

STV’s arrival on the Kingdom’s investment scene comes as interest in the technology sector reaches unprecedented levels. The Public Investment Fund — from its own resources and via its involvement in the $100 billion Vision Fund set up by SoftBank of Japan — is also pursuing tech opportunities, in Saudi Arabia as well as globally.

How does STV’s approach differ from these bigger organizations? “We are probably similar in our long-term ambitions but operating largely on different orders of magnitwude and levels of capital deployment. I think we all believe that technology will shift economic centers of gravity and disrupt long standing industries, and I think all of us are pursuing this fundamental idea that value creation is shifting.

“We are embracing, each in his own way, new paradigms, experiments, and ventures in areas where we see upsides that can be amplified by our own assets and differentiated capital. STV is merely one player in a long global and interconnected funding chain that includes all these players,” Tarabzouni said.

The venture capital industry in the Middle East is a long way behind its counterparts in many parts of the world. By way of example, Tarabzouni cites figures showing that the MENA region has only 10 percent of the venture capital funding of the US, relative to GDP.

“The industry is only now starting to gain a critical mass and momentum. Everywhere we look we see new opportunities to create market leaders that didn’t exist before and that will take a lot of investment, as well as venture capital backing, experience and support,” he said.

But the international investing community, from Asia to the US, is waking up to the opportunities that exist in the Middle East. “They are looking to put a lot of capital to work here. It’s a really positive outlook and exciting time for the regional industry right now,” he said.

Some analysts point to two difficulties in the STV strategy: The high valuations of the global technology sector, and the comparatively high levels of geopolitical risk associated with the region, and the Kingdom, in the minds of some foreign investors.

On the first fear, Tarabzouni is sanguine. “That (overvaluation) may be true in other parts of the world, but we still see a lot of value and fundamental growth opportunity for technology investment in the MENA region. In our view, we still need multiple times more VC money in MENA to rival other advanced economies and meet this region’s capacity.

“The potential is especially clear when you consider the Middle East has, for example, some of the highest smartphone penetration and digital media adoption rates in the world, as well as compelling tech-centric demographics. So, we are looking to partner with entrepreneurs who are sharp, who are tenacious, and who want to take on the world and solve big problems,” he said.

On the second point, he recognizes that the Middle East has its own issues. “The region, like any natural system, has strong forces of gravity — either legacies in the system or forces that add friction to change or progress. You need strong counter forces to achieve lift off; to reach escape velocity for new ideas.

“That is exactly what is happening now with Vision 2030 in Saudi Arabia and why we are bullish about the future. We want to work with stakeholders to enable that kind of escape velocity to happen in every sector where technology and venture capital can have a positive impact,” he said.

The economic backdrop is benign, he believes. “The long-term fundamentals of the Saudi economy remain robust. In Vision 2030 we also have a blueprint to create a better, more prosperous and sustainable Saudi Arabia,” he said.

Tarabzouni declined to talk about the other big issue facing the technology communications sector — the increasing concerns by governments and regulators over the powers of “Big Data” companies such as Facebook and Twitter and their role in “fake news.”

But, returning to the space theme, he said: “Indeed the times have changed. We are living in a world when the global space race for example is not between two powerful nations anymore but between 2-3 private companies backed by strong founders.

“The economic power of a nation is now measured by how it empowers its non-public sector to create value, and that’s the core of Saudi’s new approach, and why it is worth pursuing.”


INTERVIEW: ‘A rule for life — don’t lose money’

Updated 17 November 2019

INTERVIEW: ‘A rule for life — don’t lose money’

  • The Blackstone co-founder talks about his career at the top of the financial tree — and Saudi Arabia’s ambitious transformation plans

DUBAI: I must confess I was a little nervous about telling Stephen Schwarzman, co-founder and CEO of the gigantic financial group Blackstone, that I had not read every single word of his recently published book “What is Takes — Lessons in the Pursuit of Excellence.”

Ahead of our intercontinental conference-call interview, his aides had told me that he could work out pretty quickly if an interviewer had read it or not, and a recent interview in the Financial Times had made the point that he is not the type of man to indulge perceived lapses equably.

There was a long silence when I told him that, although I had read large chunks of it, I had not quite finished it, but I needn’t have worried. I have seen Schwarzman speak on many occasions, most recently at the Future Investment Initiative in Riyadh, and he was as pleasant and softly spoken on the phone with me as he had invariably been on those occasions. No expletives or combativeness during our phone call.

Schwarzman is pretty high up the list of the most powerful people in the world. Worth some $18 billion, he is one of the financial “masters of the universe” who count presidents, kings and princes among his circle of friends, and who has the fate of hundreds of thousands of employees in Blackstone’s portfolio companies in his hands.

Why did he write the book, which is a mixture of autobiographical memoire and self-help advice?

“I was mostly trying to give people advice and used myself as a literary device. My life’s been pretty interesting, and I’m writing about the types of things that happen to almost everyone — how through dejection and disappointment you scramble to reinvent yourself and learn from your mistakes to establish a new paradigm,” he explained.

The message from the book seems to be encapsulated in the first of his “25 rules for work and life”: “It’s as easy to do something big as to do something small, so reach for a fantasy worthy of your pursuit, with rewards commensurate with your effort.”

The response to publication has been “marvellous,” he said, including a story about a woman who had passed it on to her children as a primer for life.

Schwarzman’s own life is one that, arguably, could only have been possible in the post-war US. From small-town beginnings in suburban Philadelphia, the son of second generation immigrants who ran a linen store, he worked hard at school, got into Yale, was a track-star who signed up for the Vietnam-era army reserve and ended on Wall Street, after Harvard Business School.

A decade of fast-learning at Lehman Brothers in the 1970s — where he rose to be head of global mergers and acquisitions — gave way to disillusionment when the venerable firm was sold, and gave him the spark for what was to become Blackstone, one of the world’s foremost private equity investors.

I suggested that he had “invented” the private equity business, but he was not having that. “Inventing may be a bit too grand. What we did do was invent in effect the full-line alternative assets firm, you could call it the full-line private equity firm, which doesn’t just buy companies, which a normal private equate firm does. We also buy real estate, we also lend money, we buy credit products, we also have a big hedge fund operation.


BIO

Born: Philadelphia, US, 1947

Education

  • Abingdon Senior High School, Philadelphia
  • Yale University, bachelor of arts
  • Harvard Business School, master’s in business administration.

Career

  • Analyst, Donaldson, Lufkin & Jenrette.
  • Managing director and head of global M&A, Lehman Brothers.
  • Co-founder and CEO, Blackstone.
  • Numerous political advisory and philanthropic positions.

 

“We started out with one private equity fund, but we now have over 50 different business lines. We were pioneers in looking at new things that could be done within a private framework. Our high performance products typically earn double the stock market and almost never lose money,” he said.

He and his co-founder, Peter Peterson, put $400,000 into Blackstone in 1985. The firm now has $554 billion in assets and $62 billion in market value. Innovation has been the key to that success, identifying new sectors, new geographies and new financial products.

But old-fashioned bricks-and-mortar has also played a big role. Schwarzman saw a buying opportunity in the US real estate market when property prices fell, and Blackstone is now the “largest owner of real estate in the world,” he said.

I asked whether the current trend for valuation was up or down — for instance in New York.

His response echoed the recent comments from his friend President Donald Trump who moved his permanent residence from his home town to Florida. “New York has some special circumstances and doesn’t have as good prospects as some other places. We have extremely high taxes in New York which discourages people,” he said.

I think the Kingdom has got very ambitious plans for both growth and reform, individual rights especially for women.

 

Other parts of the US real estate market are more appealing. “You do the best typically when you buy near water, so the east and west coasts tend to be the best places to buy.” But the best property asset classes are warehouses, he said, which are benefiting from the logistics boom brought about by the likes of Amazon’s home delivery services. He has around $1 billion in warehouse assets.

Blackstone went public in 2007, just ahead of the global financial which it navigated much more successfully than many on Wall Street, including his old employer Lehman Brothers which became the largest bankruptcy in American history.

Schwarzman was able to use to broad spread of Blacktone’s global business to “see what was going on, this massive housing bubble,” before the crisis hit. He stopped investment in some real estate projects, sold down property related loans and shorted sub-prime mortgages, even making some money out of the meltdown, though he admits to some “very minimal damage.”

“We had exited, while many of the others were like the people sitting on a beach in Thailand watching the tsunami coming in. We were already a few miles inland by the time it hit,” he said. Blackstone has grown sixfold since the crisis.

Another reason for my initial trepidation on talking to Schwarzman was a warning from his advisers not to ask him too early in the conversation about the Middle East. For the past few years, he has been a confidant and business partner of Saudi Arabia, appearing on panels and forums in the Kingdom and speaking supportively of the Vision 2030 strategy, but the region does not figure too prominently in the book.

Founded in 1985 with with just a $400,000 capital, Blackstone now has $554 billion in assets and $62 billion in market value. (AP file photo)

 

There are only a couple of references to the Gulf — a capital-raising trip in the early 1990s that “bombed,” and a Kuwait-Dubai visit that nearly turned into disaster when a colleague had to be evacuated after a medical emergency by a private plane that developed engine trouble over Iran. (All ended well.)

The book ends before his most recent involvement with Saudi Arabia, the $40 billion infrastructure fund jointly invested with the Public Investment Fund, but he is happy to update his relationship with the Middle East.

“We have extensive relationships with the region. Let me give you some perspective: Since my first trip to Riyadh, it has grown seven times in population; many of the roads were dirt roads back then, but now the city is a huge, super-modern city. It’s changing so fast.

“I was in Kuwait six weeks after the Iraqi invasion was thrown back, and you could still smell cordite and see bullet holes all over. That’s where we got our first money in the region, the Kuwaitis were so grateful and we were the first Americans many of them had seen,” he said.

Saudi Arabia has been a Blackstone focus for the past couple of years. “I think the Kingdom has got very ambitious plans for both growth and reform, individual rights especially for women. Those are all good things.

“There’s a huge emphasis on the digital economy there, which is quite unusual by the historic background, and 70 percent of the population is under 30. There has been a positive response from them for what is going on there,” he added.

The $40 billion fund with PIF was “going quite well,” he said, especially against the background of low interest rates. He and PIF have bought one of the biggest ports businesses in north America and a big US pipeline business.

Like many wealthy self-made men, philanthropy is an increasing element of his personal philosophy. Schwarzman estimated he has given away something over $1 billion to a variety of philanthropic ventures, ranging from a cultural center at Yale University to the biggest ever donation to a British educational institute, a £150 million ($193 million) gift to Oxford University.

He seems most proud of the Schwarzman Scholars, a program at Tsinghua University in China which he hopes will help defuse the tensions between the US and China that have resulted in trade wars that have damaged the global economy.

That fits in perfectly with the Schwarzman philosophy. Rule number 19 in his 25-item list is: “Don’t lose money,” but he noted: “You might say that’s the No.1 rule.”