How good are sovereign wealth funds at finding unicorns?
Many of the biggest companies making news recently are backed by a sovereign wealth fund. This might give the impression these asset owners have a good track record of picking winners. Is that the case?
Good morning. It seems like whenever a company finds itself in the news, it is backed by a sovereign wealth fund.
SpaceX, Anthropic, OpenAI and Paramount are among the SWF-backed companies to have hit the headlines recently.
Some of the largest AI funding rounds have been backed by sovereign money.
So how good are sovereign wealth funds at picking the big winners, the companies that will go on to become unicorns (i.e. worth $1bn or more)? A report by IE University’s Center for the Governance of Change and ICEX-Invest in Spain sheds some light.
The report uses a sample of 1,171 SWF-backed deals between 2020 and 2025. Of those, 220, or 18.8 per cent, went on to become unicorns.
A study by researchers at Stanford University showed about 1 per cent of all venture-backed companies end up becoming a unicorn. So SWFs are crushing it, right?
Not quite, because it all comes down to timing and when you look at the number of times a SWF invested before the unicorn became a unicorn then the numbers are solid but less impressive:
But this, the report authors suggest, is a bit harsh:
“Does this mean sovereign funds are bad pickers? Not necessarily. The more informative slice is the venture-stage subset — Series A through Series C, and generic venture rounds — which represents 490 deals. Within this slice, the pre-unicorn rate rises to 4.7 per cent.”
Industry data suggests the broader venture capital sector invests in unicorns at a rate of about 4 per cent, which means SWFs are finding unicorns at a rate that is broadly similar to VC managers. Since many SWFs have put a lot of time and effort into professionalising recently, this is probably good and perhaps not wildly surprising.
The problem for SWFs is this: the success is heavily concentrated.
Of the 41 funds in the report’s sample, only six recorded any pre-unicorn deal participation at all. The rest had a pre-unicorn rate of zero.
So why are three of these SWFs so successful (the report focuses on Temasek, GIC and Mubadala - which slightly brushes over the achievements of the other three)?
The report offers four reasons: all have a commercial or hybrid savings-commercial mandate (i.e. none is primarily a stabilisation or political-delivery vehicle), all have large internal direct investment teams structured by sector, all maintain permanent offices in “major innovation ecosystems” such as San Francisco, New York and Beijing, and all have cultivated decades-long co-investment relationships with VC firms.
