So Saudi Arabia plans to create a 2 trillion dollar investment fund. Thinking about this the other day, I wondered if they had allocated any funds toward the seed/venture capital asset class.
If not then perhaps it’s something they should consider. The entrepreneurship trend is on the rise globally and it’s a trend that’s projected to continue well into the foreseeable future.
There is a problem however!
Entrepreneurs the world over need capital from time to time. This capital is not always available in their home jurisdiction. This has forced several entrepreneurs to relocate their ventures to jurisdictions in the developed world where venture capital is more widely available.
This capital comes with at a high cost however. Once the venture is relocated, the jurisdiction where the venture has been relocated to, now has a claim to a portion of any and all future revenue produced by the venture.
This situation echoes that of the colonial days where the colonial powers would import raw materials from the colonies and export back the finished goods to them. In the current scenario, the raw materials are replaced by the world’s raw talent!
While it’s true, for some commercial endeavors, relocation will be necessary. However, in this day and age of Internet enabled commerce, there really isn’t a need for such relocation to be a common occurrence.
What the global marketplace needs today is for the providers of capital to branch out from their home jurisdictions and setup shop in either:
The jurisdictions where future growth will occur;
The recognized and emerging international financial centers that provide international entrepreneurs with a neutral platform to base their ventures. I believe that it’s important to mention that Saudi Arabia’s K.A.F.D could one day become of these international financial centers in its own right.
I think it’s important to note that modern business ventures don’t necessarily need to have a physical presence in a jurisdiction. Indeed distributed teams and organizations are projected to become a common feature in the today’s business environment.
That being said, ventures need to have a legal domicile which is usually where the venture’s financial assets are kept as well. The data suggest that provision of virtual office services will become a significant business in the not to distant future. This may well be an opportunity for the KAFD.
Indeed, when you consider it, it’s an industry well suited to places like Hong Kong where physical space is at a premium. It’s also well suited to jurisdictions where people don’t really want to spend their time, but would happily domicile their business and financial assets there, provided it was beneficial to do so.
For various reasons venture capital investors tend to invest in jurisdictions where both they and the target ventures have a physical presence. One of those reasons being related to the ability to access the assets of the target venture should something go wrong and the venture fail.
All or a portion of the investment may be recouped from the assets of the failed venture by the creditors and investors. This process works best if the investors have a presence in that particular jurisdiction and are familiar with the legal system there.
I believe the fund could be a great development indeed for international trade, entrepreneurship, and global wealth and income equality, if new ventures no longer need to relocate in order to secure funding.
It could also result in Saudi Arabia eventually surpassing some of the current developed jurisdictions in terms of wealth, power, and influence.
What do you think?
Attribution:
This article was originally posted on medium.com on the 1st of May, 2016. https://medium.com/@mikehydes/how-saudi-arabias-wealth-fund-could-benefit-the-world-s-entrepreneurs-f54268971f03