Saudi Arabia Invests $400M in Ex-Uber CEO Travis Kalanick’s CloudKitchens

The former CEO of Uber, Travis Kalanick, is making another big move with CloudKitchens, a startup he’s been secretly working on for months. CloudKitchens has attracted the interest of Saudi Arabia’s sovereign wealth fund. The Wall Street Journal reported that Kalanick has raised $400 million from the Saudi’s sovereign wealth fund.

“A cloud kitchen is basically a takeaway outlet that provides no dine-in facility. They function as a production unit with a space for the preparation of food. The food can be ordered online, hence the name, cloud kitchen.”

Saudi Arabia’s previous attempts to make new investments in Silicon Valley have failed for a number of reasons, including the death of journalist Jamal Khashoggi. His death among other things put a dent on the chances of the oil rich country to expand its investment from oil to tech in the United States.

Although the sovereign wealth fund is Uber’s fifth-largest outside shareholder, several companies backed away from doing business with Saudi in a protest, after the death of Khashoggi.

Recently, Uber has been struggling, incurring loss after loss to keep investors wary of other businesses, especially startups. But the Saudis seem not care about the troubles of Uber and have refused to allow it to deter them from approaching Silicon-based businesses for investment.

CloudKitchens is a kitchen rental that has caught the eye of the Saudis, and since there was an existing relationship with Kalanick, the deal was easily struck. The media campaign that smeared Saudi Arabia following the death of Khashoggi, is eventually succumbing to the draconian oil wealth, and Kalanick didn’t wait to cash in on it.

CloudKitchens is valued at $5 billion, a huge figure for a startup, and it’s the reason the Public Investment Fund (PIF) saw the need to invest in it as early as January despite the uncertainties that usually surround startups.

Kalanick has put $300 million in CloudKitchens in his push to make the ghost cooking business reach as many countries as possible. So far, it is operational in seven countries including India, China and the U.S. a promising development for a startup that began in January.

Kalanick’s hope to attract investors and increase his capital must have been jeopardized by Uber’s many troubles. But the Saudis seem not bothered about any of that, a fact they proved by rolling out a whopping $400 million which outweighed Kalanick’s own fund by $100 million. It is believed that the gesture is suggesting that Kalanick must have developed a personal relationship with the Saudis.

In June 2006, PIF rolled out $3.5 billion investment into Uber, giving the sovereign wealth fund over 70 million shares. But Uber’s woes have adversely affected the shares. The quarterly loss of over $1 billion earlier this month means that the stock has lost about 40 percent of its value. Uber’s stock is currently at $26.92, and that means PIF has a stake of about $1.9 billion in Uber.

So in three years, PIF has lost over $1.5 billion in its investment with Uber. So staking a staggering sum once again in a startup of Kalanick’s origin suggests there is trust between him and them. Some argued that PIF’s confidence stems from the fact that Kalanick cannot be held responsible for the events at Uber, since he is no longer at the helm of affairs. So the Saudis are ready to take another chance on him.

Meanwhile, the sudden rise in cloud kitchen is creating fear and hope. There is fear it is going out those operating regular restaurants out of business and eventually narrows the eatery business to a dominant few cloud food vendors. And there is hope that it will evolve to be better and open time saving opportunities to both eaters and restaurateurs.

While conventional restaurant cannot be totally overridden by cloud kitchen, the stiff competition it will stir as more people embrace it will be damaging. Cloud kitchen restaurants focus on maximizing the number of orders per day, by focusing on the mass production of food and decreasing the overall production and packaging time.

Cloud kitchens are trying to automate most of the works of food production to cut down the time. One way many are trying to achieve this is by adopting the Hub and Spokes model and central kitchen management. The central kitchen is the hub where food will be prepared, and then delivered to the spokes or the food outlets where the remaining cooking is done.

This requires a lot of capital that many restaurants may not keep up with. And the enthusiasm of eaters who just want something different from the regular dine-in eateries may eventually die down. That means, cloud kitchens will function on “survival by the fittest.”