Saudi Arabia’s sovereign-wealth fund has pumped $400 million into Travis Kalanick’s new company CloudKitchens, according to people familiar with the situation, in a deal that could value the operator of so-called ghost kitchens at about $5 billion and reunites the former Uber Technologies Inc. chief with one of his biggest backers.
The Saudi fund’s agreement with CloudKitchens was completed in January, the people said. It was the fund’s first known deal in Silicon Valley since the murder of journalist Jamal Khashoggi last year, the people said, a killing that sparked global outrage and nixed several would-be investments.
CloudKitchens is a bet on the food-delivery boomlet. It buys cheap or rundown real estate, often near city centers, where it builds commissary kitchens—also known as ghost kitchens—that it rents to restaurants wanting to prepare food exclusively for delivery services like Grubhub Inc. and DoorDash Inc.
CloudKitchens also operates its own delivery-only restaurants in the commissaries, with names like Excuse My French Toast, Egg the F* Out, and B*tch Don’t Grill My Cheese.
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Saudi Arabia’s Public Investment Fund, or PIF, has helped fund the company’s rapid global expansion, from multiple cities in the U.S. to China, India and the U.K., according to the people familiar with the deal. Until PIF made its investment, the company was funded with $200 million from Mr. Kalanick himself, using proceeds from sales of Uber shares, one of the people said. He added another $100 million in January, bringing the company’s total to $700 million with the Saudi cash, the person said.
A spokesman for PIF declined to comment.
Mr. Kalanick knows plenty about food delivery from his time as chief executive at Uber, which has its own food-delivery service, Uber Eats, that works with CloudKitchens. Mr. Kalanick remains a director on Uber’s board, along with Yasir al-Rumayyan, PIF’s governor and one of Mr. Kalanick’s allies.
It was Mr. Rumayyan who spearheaded a $3.5 billion investment into Uber in a 2016 funding round that also gave Mr. Kalanick the right to appoint three more board members. A year later, when Uber was beset by scandals regarding its culture and operations, a group of investors successfully pushed out Mr. Kalanick as CEO. But Mr. Rumayyan remained his backer.
The pair had discussed a potential deal for PIF to back CloudKitchens since spring 2018, said a person familiar with the discussions. In October 2018, Mr. Kalanick attended the annual Future Investment Initiative conference in Riyadh, sponsored by Saudi Crown Prince Mohammed bin Salman held weeks after Mr. Khashoggi’s killing. The murder prompted many others to boycott the summit. The investment was completed three months later.
The Saudi investment has been closely guarded, known only to a handful of executives at CloudKitchens, according to the people familiar with the deal. Usually startups are funded by venture-capital firms, and those investments are public.
PIF already backs one of CloudKitchens’ top rivals indirectly via SoftBank Group Corp. ’s Vision Fund, which counts PIF as its largest backer. That company, Reef Technology, puts commissary kitchens mostly in parking lots to help the owners squeeze out additional revenue from unused parking spots. Reef received more than $1 billion in debt and equity funding from investors led by the Vision Fund in 2018 and 2019, according to people familiar with the deal.
The Saudi investment in CloudKitchens also tips the scales as one of the largest ever first-time investments in a startup by an institution, sometimes referred to as a “Series A” investment.
Two other companies have raised a comparable or larger amount, according to a Wall Street Journal analysis of data provided by research firm PitchBook. One is new media startup Quibi founded by Jeffrey Katzenberg, film producer and former chairman of Walt Disney Studios, which raised $1 billion in its first round of funding in 2018. The other is Outcome Health, a doctors’ office advertising company that raised $490 million.
A person familiar with PIF’s CloudKitchens investment said it is initially structured like a debt investment, backed by properties CloudKitchens buys, and converts to equity at around $5 billion valuation if the company raises future financing at that price or hits certain profit targets.
Mr. Kalanick didn’t speak at the FII summit, colloquially known as Davos in the Desert, held last week. Many of the companies that PIF has invested in, such as electric-car maker Lucid Motors Inc. and virtual reality firm Magic Leap Inc., showcased their products or spoke at the event.
—Eliot Brown and Summer Said contributed to this article.
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