#2) Saudi Crown Prince and the Aramco IPO
This week's jazz:
Saudi Aramco IPO, what's really on the line?
What does it take to be a successful VC Partner?
Where does the Crown Prince want to steer the largest (possibly) IPO in the world?
So we thought Elon is the living personification of 'future' - with his rockets and Minecraft inspired trucks ...
He is, but not the only one. The Saudi Crown Prince, Mohammad bin Salman (MBS), is every bit as audacious and visionary as the funds he invests in. Famously known within the tech community for his $45 billion investment in Masayoshi Son's Vision Fund I or infamously for the assassination of Saudi journalist Jamal Khashoggi.
MBS has an elaborate vision for Saudi Arabia, one that has been formally documented and actioned upon, called 'Vision 2030'. The marquee show-stopper of this decade long plan is Neom, a $500 billion dollar mega-city project which is estimated to be 33x the size of New York. Flying cars, artificial clouds, and fake moon; Neom is like a tag-team production of George Lucas and Steven Spielberg, with literally a plan to build a 'Jurassic Park' within the city. The objective of Vision 2030 is fairly simple though, to "revolutionize Saudi society, reduce dependence on oil, and make the country a tech hub".
Allow me to blend fantasy with reality; Neom with Aramco. The World's most profitable company, Aramco, is under-going its Initial Public Offering (IPO). Brief highlights:
Aramco plans to sell 1.5%-2% of the company, potentially valuing the company to $1.7 trillion - $2 trillion
So far, the IPO has drawn bids of ~$44.3 billion
Retail bidding has had an underwhelming response of merely ~$2.67 billion
The institutional tranche of the IPO has been over-subscribed, ~$38.4 - $41.63 billion and still open till today (Dec 4th 2019) to rake in more capital
Roadshow outside the Gulf region was canceled due to lack of international interests; ~10.5% contribution in the bids so far (Reuters)
Domestic incentivization: Investors are eligible for one extra share for each 10 they buy within the first 180 days
Other than the slew of tech IPOs earlier this year, I have barely gone beyond the headlines of any other company. The sole reason why my curiosity piqued for a Saudi oil and gas company is the sheer fact that the world's most profitable company is going public ... how does that sale even look like?
Fact: 1 in every 10 barrel globally is pumped by Saudi Aramco
There's more to what meets the eye though. A 68 year-old company which is an 'oil' behemoth tells a fairly extraordinary story and when extrapolated, resonates entirely with Saudi Arabia's history as well:
1925-32: Fall of Ottoman empire + consolidation of nearby lands by Ibn Saud to form Kingdom of Saudi Arabia
1938: Saudi oil was first discovered in modern-day Dhahran by Americans in commercial quantities, Aramco (Arabian American Oil Company) on the forefront
1960s: Massive oil-fields were discovered in Saudi Arabia and it becomes a founding member of OPEC (Organization of Petroleum Exporting Countries), an oil cartel
1972-73: Great Depression + Arab-Israeli War + Oil Embargo —> American struggling to import oil —> OPEC leverages the global political climate to hike oil prices —> Saudis gain tremendous wealth —> Saudi Arabia buys 20% control of Aramco
1988: Aramco now becomes Saudi Aramco, selling oil to the very same American companies that owned it
Top 10 most profitable companies in the world:
So there you go, the Aramco IPO is not just another run of the mill IPO but comes laced with Saudi nationalistic pride and invigorating history. The question then is, that why would a company which generates profits worth greater than $100 billion a year, decide to go public after 68 years since its inception and that too during a time where its surrounded by a PR nightmare?
Diversification, baby :)
Saudi Public Investment Fund (PIF) has ~$300 billion as assets under management (AUM) with 15% of its assets in international investments. The proceeds from this IPO will go towards Vision 2030 development plans.
Vision 2030 —> Sovereign Wealth Fund —> An offer from MBS that Masa can’t refuse for Vision Fund II?
The underlying aim of Vision 2030 is also to reduce the economy’s reliance on oil.
Popularly referred to as the one-trick economy, bin-Salman now wants to make Saudi Arabia less dependent on a perishable commodity. Not to mention, Saudi's contentious geopolitical environment doesn't help either. Just this September ‘19, Yemeni rebels conducted a drone strike on Saudi oil refineries, halving the country's exports for a brief moment. Clearly, not a great foundation to build a dystopian Jurassic Park (aka Neom) on 😬.
Mohammad bin-Salman saught a blockbuster deal to raise $100 billion dollars from Aramco's IPO by selling up to a 5% stake in the company, giving it a market cap of $2 trillion. Not happening. In hindsight, tech IPOs in 2019 haven't been favoring the Saudis, with declining share prices of Uber and Slack and the WeWork fiasco in general, will the oil conglomerate help tip the scales in MBS' favor?
"I am more than another statistic" - Kendrick Lamar
What's in a name? Turns out quite a lot if you want to be a VC.
Are you a David, Michael, Jon, or Mark? It turns out that having the right first name is as important as going to the right school or buying the right Patagonia vest. I love Crunchbase and even more so when they dig up research around such, nonsensical? nay, weirdly engaging topics! Someone like me who spent a good part of last year trying to figure out how to make it inside the VC industry has stumbled upon countless articles trying to find correlations and factors that allow one to a) enter the industry and b) to succeed in it. I for one find such articles highly amusing:
Crunchbase was kind enough to list leading investors by investment count in each First Name category, ie - most invested Mark is Mark Cuban with 132 listed personal investments or Chris Sacca is the most invested Chris (34 personal and 29 partner investments). Dig in here.