Matein Khalid: A Random Walk Down Silicon Valley’s Pre-IPO Deal Flow

2020 was a spectacular year for investing in late stage technology unicorns and I am proud to have led significant investor syndicates from the Gulf for Elon Musk’s SpaceX, the e-learning marketplace Udemy and Swedish fintech Klarna Bank. The secondary markets for the world’s most successful, most coveted, fastest growing and most disruptive technology companies have now come of age and offer extraordinary opportunities for wealth creation for the select few GCC family offices and institutional investors who have the intellectual bandwidth and Silicon Valley networks to access, analyse and design private investments in this elite constellation of unicorns and decacorns.

The pandemic has accelerated the world’s adoption of New Age technologies and thrust the history of digitalisation fast forward. The IPO market for the world’s hottest technology companies is white hot, as the sixfold rise in cloud software data warehouse startup Snowflake’s current market cap attests since its penultimate private market funding round.

The Airbnb IPO next week will see the birth of the world’s preeminent home rental sharing colossus at a $35 billion valuation on NASDAQ. Food delivery firm DoorDash will also go public at a $32 billion valuation next week. I know one lucky investor in the UAE whose $10 million stake in Airbnb when it was valued at a mere $1 billion in 2012 is now worth at least $350 million at the IPO offer price. Financial fairytales on this fabulous scale can only happen in Silicon Valley. This is the reason why I am obsessed with the deal flow, deal makers and deal narrators in technology’s Mount Olympus that straddles San Francisco Bay.

Inspired by the Amazon IPO in 1997, I went deal hunting on Sand Hill Road, the home turf of the world’s leading venture capitalists, this journey will resume as soon as a vaccine makes it safe to fly from Dubai to San Francisco to revisit my familiar haunts in San Fran and the Valley (Silicon – and Napa!).

Entire industries are being reinvented by the sheer ferment of the fourth Industrial Revolution. The global mania for electric vehicles, cloud infrastructure and artificial intelligence assets provides myriad opportunities to hunt for triple baggers in the late stage or even pre-IPO deal flow I encounter in the Valley. Industries like finance and education are being disrupted beyond recognition by the likes of PayPal, Square, Sofi, Udemy and Coursera. Who would have thought that a startup founded by a Malayalam math teacher from an unknown Kerala village named Byju would metastasise into a $12 billion e-learning colossus that raised money at 27 times revenues with a VC list that included Mark Zuckerberg, Naspers Ventures, Tiger Global, Tencent Holding, DST, Sequoia and Silver Lake?

Who would have thought that Flipkart founder Binny Bansal would grab e-commerce market share from Amazon, recruit Walmart as a strategic partner and morph into an Indian billionaire? I was thrilled to meet Ritesh Agarwal, a Marwari kid from Orissa with big dreams who founded Oyo Hotels and is now India’s youngest self made billionaire at 26. This was only possible because both Binny and Ritesh were smart enough to plug into the Silicon Valley venture finance grid at an earlier stage in their careers.

Who would have thought that the Millennial/Gen-Z generation, the biggest and richest in human history, will enable Robinhood to amass 15 million online brokerage accounts, more than the incumbent Big Four combined?

There are few industries more ripe for large scale technological disruption than education, as the pandemic and soaring cost for private schools/universities demonstrate. Global education is a $6.3 trillion industry alone and economists estimate the $200 billion edutech unicorns could be worth $800 billion in the next five years. This was the strategic rationale for our investor syndicate in Udemy, an e-learning marketplace with a footprint in 190 countries, 55 million students, 70% revenue growth and an exponential growth treasure trove of user generated content in 65 languages. Udemy’s IPO in 2021 will be a Wall Street and global finance sensation. The pandemic has disrupted the careers of hundreds of million young people around the world for whom e-learning is not a luxury but a lifeboat for survival in a Darwinian global job market.

As a client of various UAE retail banks since the 1990’s, I have personally experienced the nightmare that visiting a bank branch or executing a complex transaction entails. Being charged some of the highest banking fees on earth for the privilege of less than mediocre service only adds insult to injury. Luckily the fintech revolution will turn conventional banking models just about as anachronistic as brontosaurus, the horse carriage and black & white TV. The value of a select few fintechs I track in California will rise 10 to 20 fold in the next decade.

In a world with 6 billion internet users, with satellite access and 5G now a reality, 50 billion smart devices, fintech unicorns have the potential to achieve valuations comparable to mega banks like J.P. Morgan and BNP Paribas on the stock exchange. That much, at least, is certain.

My deal hunting focus in Silicon Valley is on special situations or pre-IPO investment opportunities in proven hyper growth technology businesses that are pioneers in their respective industries. This necessitates the ability to access founders, venture capitalists, growth fund managers and C-suite executives across the tech investing spectrum. The private capital markets in technology are opaque, fragmented, difficult to access and driven by incumbent networks with whom a pre-existing relationship is mission critical.

A credible global exchange for private market technology deal flow simply does not exist and price discovery is often a matter of trial and error permutations. These asymmetries in information and access mean naïve investors can and will be skinned alive by the cognoscenti as the poor lambs who purchased private shares at a 30% premium on EquityZen and other such online retail platforms will find out the hard way to their bitter regret. In this treacherous minefield, price is often a variable of an irrational seller such as an employee with large tax liabilities or a divorce settlement and a buyer clueless about the real corporate valuation metrics in the private market netherworld of the global tech village.

Technology funds often sell stakes in companies at attractive levels due to partnership disputes or the need to raise new capital. Executing a successful transaction often necessitates a plethora of relationships with angels, VCs, growth fund managers, investment banks, board power brokers, founders and C-suite executives. It often means dealing with a volatile cast of characters and an even more volatile private market driven by a seismic pace of change. I simply adore this great game of finding Silicon Valley’s next big gorilla.

Yet while I love the sheer intellectual thrill of playing the gorilla game in Silicon Valley’s pre-IPO market, I never forget the Roman philosopher Cicero’s advice from two millennia ago – not to know history is to forever remain a child.

About the Author

Matein Khalid is the Chief Investment Officer & Partner at Asas Capital in the DIFC, he is responsible for global investment strategies, merchant banking and the development of the multi-family office investment platform. He advises ultra-high net worth royal and family offices in the UAE on global equities markets and foreign exchange. He liaises with the world’s leading asset managers, hedge funds and investment banks in the design and implementation of multi-asset class portfolios. He also acts as the Chief Economist for Asas Capital and advices the firm’s clients on real time financial markets decision making. He has worked in Wall Street money center banks, securities firms and hedge funds in New York, London, Chicago and Geneva. In addition, he has been an advisor for royal family investment offices in the Gulf for 10 years.

Khalid has four degrees in finance, economics, banking and international relations from the Wharton School, University of Pennsylvania. He serves on the board of Advisory Council of the School of Business Administration at the American University of Sharjah and has taught MBA level courses in commercial/investment banking at the American University of Sharjah and British University in Dubai. He writes the Global Investing columns for Khaleej Times, Gulf Business, Oman Economic Review and the Property Chronicle in the UK.

This article first appeared LinkedIn Pulse.