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In mid-June, a delegation of Saudi Arabia officials hosted a dinner at San Francisco's Fairmont Hotel to court venture capitalists including Marc Andreessen and Michael Moritz.

In addition to discussing tech trends, Deputy Crown Prince Mohammed bin Salman indicated his kingdom aimed to do more Silicon Valley deals like the $3.5 billion investment in Uber Technologies Inc. announced two weeks earlier, according to a person who attended the dinner.

As Saudi Arabia and its oil-rich sovereign-wealth fund prepare to become bigger players in tech deal making, Silicon Valley insiders are weighing the consequences. Technology investors like to tout the social benefits of the companies they support. But the industry often overlooks investors' own principles and beliefs, focusing more on their investment record and size of their checks.

To some venture capitalists and founders, Uber's agreement with Saudi Arabia represented its tacit endorsement of that government. Saudi Arabia is the only country in the world where women aren't allowed to drive, and one of several countries where homosexuality is illegal.

"It would not have been a choice I would have made if I were them," Wesley Chan, a partner at venture-capital firm Felicis Ventures, said of Uber.

Mr. Chan, who is gay, said he wouldn't accept money from Saudi Arabia or any other investors whose values he didn't agree with. "We want to make money for folks who are tolerant and agree with our principles of diversity," he said.

Uber executives said its decision to take the investment and to add a Saudi official to its board isn't an endorsement of Saudi policies. The company and its allies say the ride-hailing service has become a valuable tool for Saudi women, who make up 80% of its passengers there. Some Uber supporters also note that the U.S. and Saudi Arabia are allies, and that other U.S. companies do business with the government.

"Of course I and everyone on Uber's board think women have the right to drive!" Arianna Huffington, the media entrepreneur and liberal commentator who became an Uber director earlier this year, said in an email. "But absent that, Uber is at least providing much needed mobility for women in Saudi Arabia," she said.

While Saudi women have benefited from the ride-hailing app, some of them were outraged that Uber accepted the Saudi investment. They accused the company of not just benefiting from the driving ban but also of effectively favoring it.

After the deal was reached, an Arabic-language hashtag calling for a boycott of Uber gained traction on Twitter in Saudi Arabia, with some women posting pictures to show they had deleted the company's app from their smartphones.

Sovereign-wealth funds such as Saudi Arabia's increasingly are investing in tech because it is one of the few areas where they can find a sizable investment return, said Venky Ganesan, a venture capitalist at Menlo Ventures, an early investor in Uber.

Drawing the line on investors isn't clear-cut. Singapore, the most active investor in U.S. tech companies, is described by Human Rights Watch as limiting the freedom of expression of its citizens. Singapore's sovereign-wealth fund, GIC Pte Ltd., is an investor in top venture firms, including Accel Partners, Battery Ventures and Sequoia Capital.

Qatar, whose sovereign-wealth fund backed Uber in 2014, has been scrutinized over its treatment of low-paid migrant laborers.

The Saudi government plans to turn its sovereign-wealth fund into the largest in the world, with assets eventually worth nearly $3 trillion, and it is looking for non-oil investments abroad as part of its Vision 2030 plan to diversify its economy. Saudi officials are making overtures to Silicon Valley.

Kristine Beckerle, who studies women's rights issues in the Middle East for Human Rights Watch, said Western technology companies and investors have a unique opportunity to help shape its social policies.

"For tech companies, you are in this amazing position where you have one of the most powerful people in the kingdom coming to meet with you," Ms. Beckerle said. "Now is the moment where they do have leverage."

In addition to venture capitalists, the delegation led by the deputy crown prince also visited with tech CEOs including Apple Inc.'s Tim Cook, Facebook Inc.'s Mark Zuckerberg and Microsoft Corp.'s Satya Nadella. Messrs Andreessen and Moritz declined to comment on the VC dinner.

Adnan al-Sharqi, a senior official at Saudi Arabia's investment agency who participated in the U.S. trip, said the Silicon Valley visit was aimed at inviting tech companies to invest in Saudi Arabia. He said "the trip has opened up what will be a sustained dialogue to discover how Silicon Valley companies and Saudi Arabia can deepen existing partnerships."

Under pressure from low oil prices that are hurting government coffers, Riyadh is actively looking for investments abroad. The agreement with Uber represents the country's biggest such investment since Riyadh announced its long-term plan to overhaul the economy in April.

The Saudi government is striving to present a softer side. This year, for instance, the royal court stripped its religious police agency of its powers to arrest people, reducing it to an advisory body. The group is tasked with enforcing Saudi Arabia's strict interpretation of Islam.

U.S. venture capitalists and tech entrepreneurs in interviews were divided on whether they would accept money from Saudi Arabia.

Some said the U.S. government's dealings with the Saudi government set a precedent that businesses can follow. They also argue that Americans who buy gasoline are supporting an industry that is Saudi Arabia's biggest source of income. Others said that by accepting Saudi money, Uber missed an opportunity to help promote social change.

Unlike public companies, closely held startups can choose their investors. And in Silicon Valley, where companies often profess to work toward a public good as well as profits, the choice of investors can reflect the sincerity of that mission.

"I imagine not every entrepreneur will feel comfortable with sovereign-wealth funds from countries with different priorities and belief systems," said David Pakman, a partner at New York venture firm Venrock, who declined to comment specifically on Uber or Saudi Arabia.

Lukas I. Alpert contributed to this article.

Write to Douglas MacMillan at douglas.macmillan@wsj.com and Margherita Stancati at margherita.stancati@wsj.com

(END) Dow Jones Newswires

July 17, 2016 22:15 ET (02:15 GMT)

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