(Bloomberg) -- Abu Dhabi’s Mubadala Investment Co. is taking an increasingly active approach to the European startups it backs as it seeks to improve returns, according to people familiar with the matter.
Since the start of this year, at least four companies in Mubadala’s European portfolio have undergone either major structural change, refinancing, or a replacement of leadership, coinciding with a global chill in the sector.
Mubadala’s head of ventures, Ibrahim Ajami, has been on a mission since 2019 to establish the investor, owned by Abu Dhabi’s $300 billion sovereign wealth fund, as one of the world’s premier venture capital players.
Yet after the fizz around startups deflated after the pandemic, the fund needs to show it hasn’t overpaid for firms, the people said, who asked not to be named discussing the strategy shift.
“Like any other fund, Mubadala has a return expectation,” Lawrence Leuschner, chief executive officer at Mubadala-backed Tier Mobility told Bloomberg News. “In downturn times like 2023 to 2024, Mubadala is also concerned with recovering investments made at a high price in 2021 to 2022.”
Tier, which was valued at $2 billion in a 2021 funding round that involved Mubadala, merged with its competitor Dott earlier this year at a fraction of that price. Leuschner described Mubadala, which led the transaction, as “tough but constructive.”
Mubadala says its approach to supporting founders and driving value hasn’t changed — but acknowledges occasional disagreements along the way.
“We have recently had certain situations where companies raised significant capital between 2019 – 2022 but have not necessarily been as capital efficient, focused, and precise in their strategies as they could be,” a representative for Mubadala said.
Mubadala is often the only investor willing to continue funding some of these companies through difficult times, the spokesperson added. It says it has been working to transition them to more sustainable and profitable business models.
“In some of these situations, we have agreed with other investors and management on the future direction of the company and in some cases we have not,” the representative said. “But in all cases we are active, engaged and doing our best to find solutions.”
Mubadala’s more proactive approach to its investments is also a sign of the role that Middle Eastern wealth funds are playing in the venture capital industry. Historically seen as passive investors who participated alongside big-name venture funds, they have grown more sophisticated and are increasingly leading some of the largest funding rounds.
People familiar with the situation pointed to the hiring in 2022 of Jonno Elliott, a longtime investment director at Virgin Group Ltd.’s venture arm, as contributing to that shift.
Drastic Measures
For founders accustomed to the exuberance of the pandemic, Mubadala’s harder approach has sometimes come as a shock.
At German insurance startup Wefox Holding AG, Mubadala participated in a $650 million fund-raising in 2021 at a $4.5 billion valuation. Initially, cash for investment and acquisitions was available abundantly, a person close to the startup said.
But as sentiment in the sector cooled and the company’s losses mounted — more than €100 million in 2023 — Mubadala proposed more drastic measures. The fund set out a deal that would have seen the startup sold for just $550 million — potentially wiping out founders and early backers.
But Mubadala didn’t manage to force its vision through. Wefox is parting ways with CEO Mark Hartigan, an advocate of the Mubadala deal, having secured some €25 million from Chrysalis Investments and Target Global.
The spokesperson for Mubadala said that Wefox stakeholders were “not always in agreement” but that it was operating “in good faith” to find a sustainable path for the firm. A representative for Wefox declined to comment.
There are echoes of Wefox elsewhere across the tech portfolio.
In 2022, Mubadala led a round of financing into Turkish grocery delivery startup Getir that valued it at $11.8 billion — a stand-out figure even in the peak of the pandemic delivery bubble.
But Getir’s expensive expansion and its acquisitions of rivals such as Germany’s Gorillas never translated to international profitability. By 2023, it was burning about $50 million a month.
After a fraught battle between CEO Nazim Salur and his investors over the company’s direction, Getir withdrew from its international markets and eventually split into two — the core Turkish delivery business controlled by Mubadala, and the remainder by Salur and his co-founders.
“We have been the only investor to consistently support Getir over the last three rounds, providing over 80% of the capital that has gone into the company since 2021,” the Mubadala spokesperson said, acknowledging earlier “disagreements” with Getir’s founders. “Without Mubadala’s partnership and support, Getir would not exist today.”
Another pandemic bet, British warehousing and fulfillment startup Huboo, also proved in need of rescue. Mubadala led a £60 million funding round into the firm in 2021, when e-commerce was booming.
Ballooning Losses
But as the coronavirus crisis eased, interest rates rose and consumers pulled back on discretionary online spending, Huboo’s losses ballooned and its margins cratered, documents obtained by Bloomberg News show. In 2022, losses were £47.5 million on revenue of £20.3 million.
After a difficult search, Huboo secured funding led by Mubadala, giving the Emirati investor board control. As part of the new financing, CEO Martin Bysh stepped down, with Andrew Pinnington coming in as his replacement.
Mubadala played the role of “investor of last resort,” according to one person with knowledge of the matter, who asked not to be identified to avoid jeopardizing relationships.
Spokespeople for Huboo, as well as Wefox and Getir, declined to comment on the relationship with Mubadala.
A VC firm that’s putting in hundreds of millions of dollars can’t be asked “not to make the necessary adjustments if the CEO is overwhelmed,” said Noa Khamallah, general partner at venture capital firm Don’t Quit Ventures. “Lead investors are also there to provide help and guidance, not only capital.”
--With assistance from Dinesh Nair and Mark Bergen.
©2024 Bloomberg L.P.