Saudi Arabia Buys Majority Stake In AR Startup Magic Leap

  • M&A
  • January 1, 2023
  • 1035
  • 5 minutes read

Magic Leap logo

The Kingdom of Saudi Arabia has purchased a majority stake in Magic Leap, a once high-flying augmented reality startup, regulatory filings reveal. The investment came from the Public Investment Fund (PIF), a sovereign wealth fund of the country with over $500bn of assets under management.

  • According to a recent annual report filed by Magic Leap’s UK-based European subsidiary, the Public Investment Fund has acquired over 50% of the parent company’s shares and is entitled to appoint four of eight members of its board of directors. The report noted that Magic Leap raised $150mn from selling equity and $300mn in debt “to date in 2022”, so that seems to be what the PIF paid for its majority stake.

 

  • The Public Investment Fund was already a significant Magic Leap shareholder; it invested $400mn in the company in 2018.

Magic Leap is a cautionary tale about startups that ride high on hope and hype and fail to deliver their outsized promises. The company was founded in 2010 to develop a sophisticated augmented reality headset targeted at everyday consumers. It wowed investors with its demos and raised over $2bn before releasing its first product, the Magic Leap One, in 2018. Unfortunately, that product underperformed and sold just a few thousand units in its first year, a far cry from predictions of 1 million units by the company’s leadership.

The weak performance made Magic Leap pivot from everyday consumers toward enterprises. The company’s founding CEO, Rony Abovitz, stepped down and was replaced by Peggy Johnson, a longtime Microsoft executive. Johnson has overseen the pivot toward enterprise customers, but Magic Leap hasn’t recovered to its glorious days.

Before this deal, Magic Leap had raised a total of $3.5bn from VCs. It appears that Saudi Arabia’s Public Investment Fund paid much less than that amount for its majority stake ($150mn in equity and a $300mn debt package), meaning previous investors ate big losses.

  • The Public Investment Fund is one of the biggest investors in technology companies across the globe. It provided $45bn to the fabled $100bn SoftBank Vision Fund and directly owns shares in publicly-traded companies like Microsoft, PayPal, Alphabet, and Meta.

 

  • Rising oil prices as of late have favored the coffers of Saudi Arabia. Its state-controlled oil company, Saudi Aramco, reported a record $130bn in profits between January and September 2022, some of which will flow into foreign investments like Magic Leap.

 

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