Des­ti­na­tion Is­rael

Chi­nese in­vestors flock­ing to home of many high-tech star­tups

China Daily (USA) - - FRONT PAGE - By MASI in Tel Aviv masi@chi­nadaily.com.cn

Avi Co­hen, CEO of The Floor, a Tel Aviv-based in­cu­ba­tor of fi­nan­cial tech­nol­ogy firms, hosts visi­tors, mostly Is­rael en­trepreneurs, all the time. But, on a re­cent Septem­ber week­end, his guests were 30 chair­per­sons of Chi­nese firms.

“Tra­di­tion­ally, Is­raeli en­trepreneurs tend to look atWestern mar­kets for growth. But that is chang­ing with the grow­ing in­ter­est from Chi­nese in­vestors,” Co­hen said.

The Floor was es­tab­lished eight months ago. So far, it has raised $2 mil­lion from Pando Group, a ven­ture cap­i­tal fund backed by China’s Bloomage BioTech­nol­ogy Corp Ltd. The Floor plans to open a Shang­hai branch next year.

The in­vest­ment is part of a broad trend un­fold­ing in Is­rael, a global in­no­va­tion hotspot which has be­come a pop­u­lar des­ti­na­tion forChi­nese cap­i­tal as China works hard to up­grade from a man­u­fac­tur­ing hub into a tech bee­hive.

“Cur­rently, every week, there is a Chi­nese delegation vis­it­ing Is­rael. They can be en­trepreneurs, schol­ars or gov­ern­ment of­fi­cials,” an of­fi­cial at the Chi­nese Em­bassy in Tel Aviv told China Daily.

In 2015, Chi­nese in­vest­ments in Is­raeli star­tups and funds ex­ceeded $500 mil­lion, show­ing a growth of 300 per­cent since 2012, data from the Is­raeli Min­istry of Econ­omy and In­dus­try shows.

Tech gi­ants such as Baidu Inc and Alibaba Group Hold­ing Ltd, as well as play­ers in tra­di­tional in­dus­tries, have all joined the race. Last year, Chi­nese firms contributed 40 per­cent of money raised by Is­raeli ven­ture cap­i­tal funds.

“Is­rael’s tech scene is a can’t-miss these days,” said Song Chunyu, vice-pres­i­dent of Bei­jing-based Len­ovo Group Ltd. In charge of Len­ovo’s in­vest­ment unit, Song vis­its Is­rael at least once a year.

Ac­cord­ing to him, the Mid­dle East­ern coun­try, which was ranked by Bloomberg as the se­cond most in­no­va­tive coun­try in terms ofR&Dca­pa­bil­i­ties in the world in 2015, is highly com­ple­men­tary to China’s econ­omy.

“Is­raeli en­trepreneurs are will­ing to spend years and decades on a spe­cific core tech­nol­ogy, but their growth is of­ten lim­ited by its small do­mes­tic mar­ket,” Song said.

On the other hand, China, with a sta­ble econ­omy and a pop­u­la­tion of 1.3 bil­lion, is a huge mar­ket but lacks ul­tra­mod­ern tech­nolo­gies. “The two coun­tries are a per­fect match in the tech sec­tor,” he said.

Len­ovo has so far poured $20 mil­lion into six Is­raeli star­tups, in­clud­ing Neura, a plat­form that helps users per­son­al­ize con­nected de­vices while guard­ing their data.

It plans to in­vest $100 mil­lion more in lo­cal star­tups over the next three years to tap into Is­raeli tal­ents.

Hila En­gel­hard, an of­fi­cial at the Is­raeli Min­istry of For­eign Af­fairs, said: “China is like a gi­ant com­puter and Is­rael can serve as a pro­ces­sor in it.”

Ac­cord­ing to her, a big por­tion of Chi­nese money is flow­ing into ar­eas like agri­cul­ture, med­i­cal tech­nol­ogy mo­bile internet and other high-tech in­dus­tries.

Chi­nese in­dus­trial con­glom­er­ate Fo­sun In­ter­na­tional Ltd, for in­stance, spent $240 mil­lion to ac­quire a 97 per­cent stake in Is­raeli med­i­cal tech firm Alma Lasers Ltd.

Last year, Baidu Inc in­vested $5 mil­lion in Tonara, which de­vel­oped an in­ter­ac­tive mu­sic ed­u­ca­tion app, along with its Is­raeli VC part­ner Carmel Ven­tures. Prior to that, it in­vested $3 mil­lion in lo­cal video cap­ture firm Pix­el­lot.

The trend is fu­eled by the na­tional gov­ern­ments’ ef­forts to deepen bi­lat­eral ties. A 10-year mul­ti­ple en­try visa pol­icy will take ef­fect next month. The two sides will also start talks for a free trade agree­ment. That will be pre­ceded by a three-year deal to pro­mote bi­lat­eral co­op­er­a­tion.

Such en­thu­si­asm was very much in ev­i­dence at the se­cond China-Is­rael In­no­va­tion and In­vest­ment Sum­mit, which was held in Tel Aviv in late Septem­ber. About 100 Chi­nese firms and 300 Is­raeli com­pa­nies showed up and ne­go­ti­ated in­vest­ment pro­pos­als to­tal­ing $1.5 bil­lion, ac­cord­ing to the con­fer­ence or­ga­nizer.

Among them is Chi­nese so­cial net­work­ing heavy­weight Ten­cent Hold­ings Ltd, which is look­ing for star­tups in ar­ti­fi­cial in­tel­li­gence, aug­mented re­al­ity and cloud com­put­ing.

A group of CEOs from 40 smaller Chi­nese man­u­fac­tur­ing firms was also present,

China is like a gi­ant com­puter and Is­rael can serve as a pro­ces­sor in it.” Hila En­gel­hard, of­fi­cial at the Is­raeli Min­istry of For­eign Af­fairs

look­ing for tech­nolo­gies that can up­grade their fac­to­ries or help build new growth en­gines, as they wres­tle with mount­ing pressure of an econ­omy whose growth rate is slow­ing.

Chi­nese IT firm Neu­soft an­nounced at the start of the con­fer­ence with Is­raeli-Chi­nese pri­vate eq­uity fund In­fin­ity Group that it would jointly set up a $250-mil­lion fund to in­vest in Is­raeli med­i­cal tech­nolo­gies over the next three years.

Shen Meng, direc­tor of Chan­son & Co, a bou­tique in­vest­ment bank in China, said a few Chi­nese star­tups do have “core tech­nolo­gies”, but have been over-val­ued, push­ing up the in­vest­ment cost, which is prompt­ing in­vestors to look for the real gold in Is­rael.

“But China’s bud­ding busi­nesses that are com­pet­i­tive won’t suf­fer from this trend. Af­ter all, China has a lot of in­vestable funds now. What we re­ally lack are good ven­tures,” Shen said.

Eran Wag­ner, gen­eral part­ner of Is­raeli VC fund Gem­ini, said Chi­nese firms of­ten adopt two approaches to in­vest­ing in Is­rael: they ei­ther pour money into lo­cal VC funds whose net­work can help them ef­fec­tively

work can help them ef­fec­tively reach early-stage star­tups or di­rectly pump cap­i­tal into late-stage firms that have ma­ture tech­nolo­gies and prod­ucts. “Chi­nese in­vestors pre­fer later-stage firms.”

But asChina is mov­ing rapidly from be­ing a man­u­fac­turer to a global R&D cen­ter, the ap­petite for risk and will­ing­ness to fund tech­nolo­gies that are not fully de­vel­oped, are grow­ing, he said.

Com­pared with their Western coun­ter­parts, how­ever, deep-pock­eted Chi­nese firms are still new­com­er­sto theMid­dle East­ern coun­try. The lan­guage bar­rier — English and He­brew are pre­dom­i­nant in Is­rael — cul­tural dif­fer­ences and a dif­fer­ent startup ecosys­tem all add up to the chal­lenges thatChi­nese in­vestors face.

“It is quite im­por­tant to de­velop trust­wor­thy lo­cal ad­vi­sors to nav­i­gate the dif­fer­ences be­tween the two coun­tries,” said Chen Hong­wei, ex­ec­u­tive direc­tor for Ten­cent’s merg­ers and ac­qui­si­tions.

Things are al­ready mov­ing in that di­rec­tion rapidly. Le­gal firms, HR firms that sup­ply work­ers, trans­la­tors and guides, and plat­forms con­nect­ing Is­rael and China, are mush­room­ing.

Geek­park and 36Kr.com, two pop­u­lar Chi­nese tech­nol­ogy web­sites, rolled out Is­raeli busi­ness trip projects last month for small Chi­nese firms keen to visit Tel Aviv for in­vest­ments.

Wang Xin, a Chi­nese stu­dent at He­brew Univer­sity, is itch­ing to jump on the bi­lat­eral tech band­wagon. “I wanna stay in Is­rael to help deepen China-Is­rael busi­ness con­nec­tions upon grad­u­a­tion. This is an op­por­tu­nity too pre­cious to miss.”

WANG XIAOYING / CHINA DAILY

REUTERS

A mem­ber of a Chi­nese busi­ness delegation speaks with an em­ployee (R) of Is­raeli high-tech firm ironSource at his of­fice in Tel Aviv in this file photo.

REUTERS

Mem­bers of a Chi­nese busi­ness delegation at­tend a pre­sen­ta­tion by Is­raeli high-tech firm ironSource’s CEO Tomer Bar Zeev (L) at the com­pany’s of­fice in Tel Aviv in this file photo.

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