Alibaba.com’s headquarters in Hangzhou. Chinese companies like Alibaba and Baidu are looking for investments in Israel.
Chinese investors are a common sight in Israel these days. Companies like Alibaba and Baidu are looking for promising innovations that will help them compete globally, while a host of angel investors are hoping to get in early enough to profit from promising startups. For Israeli tech firms it’s an opportunity to tap a huge market and a new pool of investors. In a typical deal, Alibaba invested earlier this year in Visualead, giving the e-commerce giant access to a leading startup’s mobile marketing technology.
“The Chinese are looking for leaving-the-nest technology,” said Sephi Shapira, chief executive officer of MassiveImpact International, a Tel Aviv-based mobile advertising company that generates half its sales in Asia. “They need technology to help with user experience, big data, anything to take the product they built for the Chinese market and make it work externally.” Technology investment from China is growing 50% annually, according to IVC Research Center, which expects the total raised in financing rounds with Chinese participation to reach as much as $500mn this year, up from nearly nothing in 2011. Eyal Rosenthal, who runs the Infinity Israel-China Fund, predicts investment in Israeli-related technologies and industries will reach $10bn by 2020, with direct investments in tech companies exceeding $2.5bn in the next five years.
While Chinese investors are also scoping out the US, Israel holds special appeal. Israeli firms are relatively affordable at a time when more than 100 Silicon Valley startups are valued at $1bn-plus. What’s more, Washington often subjects deals involving foreign companies to scrutiny to ensure they don’t threaten national security - a costly and time- consuming process that can end in rejection.
“Israel is more accessible than Silicon Valley, where Chinese may be treated with suspicion to a certain extent,” said Haggai Ravid, CEO of Cukierman & Co an Israeli investment house that opened two offices in China this year. “When they come to Israel, we like them and they like us.”
The flurry of Chinese investment coincides with efforts on the part of the Israeli and Chinese governments to boost bilateral trade. In 2013, Israeli Prime Minister Benjamin Netanyahu proposed in Beijing that Israel “be the R&D lab for China.” Last year, the Israeli government hosted a conference in Tel Aviv, where some 350 Chinese businessmen and government officials met with tech entrepreneurs and scientists.
Meanwhile, Chinese President Xi Jinping, seeking to reduce the role of state-owned enterprises, is encouraging the growth of private- sector technology and service businesses.
Earlier this year, Baidu, a Web services company, invested in a content discovery firm called Taboola and Tonara, which sells a sheet music app. The Xio Group, a closely-held Chinese investment firm, acquired medical laser technology company Lumenis. In March, Alibaba invested in the VC firm Jerusalem Venture Partners, which hosted the Zou Bisou Bar bash.
Encouraged by all the deal-making, Israel’s Ministry of Economy is planning a China-Israel Technology & Investment Summit in January in Beijing that will host more than 1,000 attendees.
There are obstacles to overcome. The Chinese have concerns about a spasm of violence that in recent weeks has killed 19 Israelis and more than 90 Palestinians, most of them in attempted attacks or clashes with security forces. For their part, Israeli startups fret about the potential theft of intellectual property.
To overcome such qualms, Duncan Chiu, whose Hong Kong-based Radiant Venture Capital has invested in eight Israeli startups, woos firms by pointing out that the vast Chinese market can deliver millions of customers in a matter of days.
With as many as 7,000 Israeli startups selling everything from virtual reality software to cyber security products and online navigation systems, Chinese investors have a wide array of technologies to choose from. While Chinese companies have invested in mobile and marketing startups, typically they aren’t looking for “cool and funky” applications, said Fiona Darmon, Jerusalem Venture Partners’ chief operating officer.
“They are interested in what Israel has always been good at - core technologies such as storage, big data, connectivity, cloud.”
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