$3.5 billion Saudi investment in Uber puts brakes on competition
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Uber's $3.5 billion Saudi announcement is a gigantic gamechanger for private capital (image, screenshot Uber KSA on Twitter)

Interestingly, since women in Saudi Arabia are not allowed to drive, 80% of Uber users registered in the country are women

Saudi Arabia’s Public Investment Fund is investing $3.5 billion in Uber, the company announced overnight. The fund’s manager Yasir Al Rumayya will join the long table of Uber’s board of directors.

It’s not the first Persian Gulf country to invest its riches into the company. Qatar has dipped into its own state fund for Uber. According to the New York Times, the investment will not cash out any existing investors, as has been the trend with Uber’s überladen investments.

It is a huge infusion from a country awash in cash, but also proudly ironic as Saudi Arabia garners far more negative publicity over driving than positive: Women are notoriously not allowed to drive in the kingdom. Interestingly, the law has created a lopsided demographic for Uber customers in the kingdom as 80% of riders are women.

Uber claims to have registered some 395,000 riders in the Middle East and 19,000 drivers. They have already been active in Saudi Arabia for some time and are currently hiring a General Manager for its Saudi division (@Uber_KSAand an Operations Manager for the Eastern Province. The company also recently announced it would begin accepting cash payments from riders in the Saudi kingdom.

“We appreciate the vote of confidence in our business as we continue to expand our global presence,” Uber CEO Travis Kalanick wrote in an email. “Our experience in Saudi Arabia is a great example of how Uber can benefit riders, drivers and cities and we look forward to partnering to support their economic and social reforms.”

That last bit might raise some eyebrows, but it likely refers to the Saudi government’s Vision 2030 national economic program that includes plans for its Public Investment Fund “to maximize our investment capabilities by participating in large international companies and emerging technologies from around the world.”

The round also lets the Saudi Royal Family somewhat dance around Uber’s requirement that its funders not also invest in competitors. The state’s investment funds are controlled by the Saudi royal family, but Prince Alwaleed bin Talal has personal investments tied up in U.S. competitor Lyft.

“The Saudi Arabian Public Investment Fund is excited to have completed this important strategic investment with Uber, an extraordinary company with an inspiring mission,” the fund’s managing director, Yasir Al Rumayyan, wrote in a statement. “We’ve seen firsthand how this company has improved urban mobility around the world and we’re looking forward to being part of that progress.”

UberX currently operates in five Saudi metro areas: capital city Riyadh, Jeddah, Dammam and in the two holy cities of Medinah and Mecca. UberXL also operates outside the holy cities and UberBLACK is available in the capital.

Über-extended?

This clearly will signal alarm bells for rivals Lyft, Didi Chuxing (China), Ola Cabs (India) and Grab Taxi (Southeast Asia). It might also serve as a major repudiation of Careem, an Uber competitor based in Dubai that has been expanding throughout the Near East and South Asia, recently announcing strategic moves in Pakistan to compete with Uber. The new round might also validate Uber’s strategy to avoid buying out the competition. If the money is directed toward regional expansion, the funding will make it extraordinarily difficult for competitors like Careem.

Uber had planned on allocating $250 million toward Middle Eastern expansion according to Jambu Palaniappan, Uber’s general manager for the Middle East, Africa and Central and Eastern Europe in a January interview. That number would seem to have grown immensely. This large amount of cash could be destined to support the autonomous car venture, but it’s likely Saudi Arabia would want to expand services across the country for those aforementioned female customers who cannot drive on their own.

Why has Uber escaped from the funding crunch?

The investment really brings up a lot of other questions considering there has been an extended funding crunch that is hindering development of other startups. Seed investments aren’t being watered or nurtured, and there’s been immense efforts to consolidate venture capital portfolios. Valuations are being questioned more thoroughly, and that has brought a lot of pressure to bear on Uber.

Seemingly disavowing its penchant for secrecy under all that weight, Uber finally confirmed it was indeed working on self-driving cars in late May by revealing a supped-up prototype on the streets of Pittsburgh. Chinese rival Didi also picked up a $1 billion investment from Apple a couple weeks back, adding to the trend of colossal developments in 2016 for autonomous vehicles that began with General Motors leading a $1 billion round in Lyft.

The investment might also kill any remaining speculation that Uber will go public. It seems to have no trouble raising freakish amounts of cash with private investors, giving it little reason to allow its estimated valuation of $62.5 billion to be challenged by a more skeptical IPO. The news also accompanies rumors Uber will announce a major investment related to Uber India.

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