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Uber-Saudi Arabia Deal Is the Latest Sign the Tech Bubble Could Be Popping

Saudi Arabia’s Public Investment Fund is plunging $3.5 billion into Uber, cementing a value for the ride-sharing company of $62.5 billion. But Uber isn’t the first American-owned private company to look East for investors to validate an astronomical valuation. And it’s not the first time investments from sovereign wealth funds signaled the top.

During the economic boom a decade ago when private equity firms were enjoying sky high valuations, they also took money from sovereign wealth funds in Abu Dhabi, Kuwait, Singapore, and China. Like Uber, many of the private equity firms used the imported cash to push their businesses ahead in new regions.

But a look back at history shows that when nations plunged money into US-based companies with market momentum their timing wasn’t so great.

Back in September 2007, for instance, Blackstone took a $3 billion investment from the China Investment Corp. in exchange for a 10% stake, valuing the company at $30 billion shortly before Blackstone listed shares on the public market. Others soon followed. Abu Dhabi’s Mubadala Development Co. invested $1.35 billion in Carlyle for a 7.5% stake in September 2007, giving it a valuation of roughly $18 billion. Abu Dhabi Investment Authority bought 9% of Apollo a couple of months later.

Shortly after these investments, shares of private equity companies plummeted. Blackstone’s stock fell more than 85% in total between late-2007 and early-2009. The current share price is still below Blackstone’s stock price its first day of trading, and it has only touched above that price briefly over the past nine years. Carlyle listed shares in May 2012 in an IPO that valued the company at $6.7 billion, valuing the company’s shares at less than half Abu Dhabi’s investment fund paid for it.

Some of this had to do more with the market than private equity firms. That year, 2007, was about the worst year to invest in any public U.S. company, especially big ones.

Nonetheless, it wasn’t just bad luck that lead to poor investment performance of the sovereign wealth funds. Towards the end of the mid-2000s buyout binge, Blackstone and others were making some bad deals that the sovereign wealth funds didn’t know about, or ignored.

That doesn’t have to be the case this time around with Uber. Saudi Arabia is an attractive market for the ride-sharing business because it gives women, who are not allowed to drive, a way around. According to the New York Times, about 80% of the people who use Uber in Saudi Arabia are women. Nevertheless, the population of Saudi Arabia is roughly 29 million, only slightly larger than the state of Texas. While the country offers some new possibilities, the overall new addressable market is relatively small.

Princess Reema bint Bandar al-Saud is on Uber’s public policy advisory board, and according to the New York Times worked with Uber to bring the service to Saudi Arabia. So the Saudi investment may be more of a deal about the future of Uber’s business, rather than whether it is a good or bad buy right now.

Still CIC might serve as a reminder that when sovereign wealth funds buy in, they do it at the worst time. In 2014, the fund’s manager was accused by China’s top auditor of mismanagement and poor due diligence in part because of the fund’s failed investments overseas. Despite that, Blackstone is humming along, not that CIC’s investment ever recovered.

That might serve as a warning to anyone buying into a tech unicorn right now, or when they finally go public. These days, the people paying up for unicorn rides have not proved all that smart in the past.