Israeli Tech Startups Attract Chinese Investors
China’s Search for Tech Investments Leads them to Israel
Dec. 16, 2014 5:28 a.m. ET
Baidu Inc. ’s investment in Uber Technologies Inc. last week is just the latest big Chinese investment in a foreign firm. But Chinese executives and investors say the tech startup hub of Tel Aviv is fast becoming a frequent stop in China’s global hunt for companies, startups and investments. They are joining American, European and Russian investors who have been shuttling in and out of Israel for years—many of whom have taken advantage of the country’s high-tech workforce to set up research and development beachheads.
China’s hunt for innovation spans the globe, with investments in Silicon Valley, Europe, India, Korea and Malaysia. Israel is a relatively late addition, but a welcome one amid Tel Aviv’s tech startup community.
Politics may also factor in. “Israel is a bystander in the game between China and the U.S. The competition between the two gives Israeli startups an edge. A Chinese phone manufacturer, who wants to compete with Apple, would feel more comfortable with an Israeli entrepreneur, without fearing patriotism or favoritism by an American company. All things being equal an Israeli company is more likely to get a Chinese investor’s money,” said Alon Sahar, a partner at Meitar Liquornik Geva Leshem Tal law firm.
“China is our fastest-growing market and we figured we needed Chinese partners and investors,” said Tomer Bar-Zeev, chief executive of Tel-Aviv-based IronSource Ltd., an advertising technology company.
Over the next two years, China is expected to surpass the U.S. as Israel’s biggest collaborator in the number of joint government-backed development projects, said Avi Luvton, executive director for the Asia Pacific region at the Israeli Industry Center for R&D.
“The first two destinations we’ve targeted for venture investments were the U.S. and Israel,” said Daniel Tu, group chief innovation officer of the Ping An Insurance (Group) Co., a financial services group. In September, Ping An Ventures, the company’s venture capital outfit, took part in an $85 million pre-IPO funding round in Mr. Bar-Zeev’s IronSource.
Mr. Tu says, in some cases, Israel entrepreneurs are easier to work with. “Silicon Valley startups are keen on disruptive technology. I find Israeli entrepreneurs more practical as they build out their companies. They now view China as a viable option for both growth and exit strategies,” he said.
Ping An Ventures has made eight investments in Israeli startups so far. Last week, it said it would co-lead an investment of $27 million in Israeli online trading platform eToro Group Ltd.
Up until 2013, Chinese investments in Israeli technology companies and venture funds that invest in them were rare. But the pace has accelerated rapidly over the past two years. Israel’s National Economic Council expects tech deals between Chinese and Israeli firms to total $300 million this year alone, up $50 million from 2013.
Chinese investors aren’t writing the sort of multi-billion-dollar checks they have recently in other industries. Chinese firms have invested heavily in assets such as North American oil fields and African mines. In Israel, China National Chemical Corporation (ChemChina) bought Israeli pesticides manufacturer ADAMA Agricultural Solutions Ltd. for $2.4 billion in 2011. This year, China’s state-owned Bright Food Group Co. bought a majority stake in Israeli dairy company Tnuva Food Industries Ltd. in a deal worth $960 million.
When it comes to tech, Israeli companies are still much smaller than counterparts in Silicon Valley, and Chinese companies have kept their investment to a few million dollars apiece, sometimes alongside non-Chinese venture-fund partners. Chinese firms also have looked at investments that may have benefit back at home. As part of its deal with eToro, the Israeli company agreed to expand its operations in China.
Chinese provinces and companies are also seeking new technologies in alternative energy, agriculture and water management to address some of the issues caused by China’s rapid urbanization.
“Before, companies in China were trying to replicate. We are now trying to lead. Technology is a deciding factor,” said Jing Wang, senior vice president of engineering at Baidu, a leading Chinese online search and e-commerce company.
Baidu, the Uber investor, has become one of the highest profile Chinese companies on the hunt in Israel.
Last month, Mr. Wang led a delegation of Baidu executives on a visit to Israel. The delegation met with numerous Israeli startups. Around the same time, Baidu CEO Robin Li met in China with Israeli’s economy minister Naftali Bennet. The Chinese company has invested an undisclosed sum in Israel-based venture fund Carmel Ventures. Earlier this month, it announced its first investment in an Israeli startup: a $3 million investment in Pixellot Ltd., which develops video cameras that can be controlled remotely to provide footage of sports and music events. Baidu has also recruited two Israeli technology scouts to search for possible tech investment and acquisition opportunities.
“We’re interested in investment and M&A possibilities anywhere in the world where there are great tech entrepreneurs, and there is no doubting that Israel is such a place,” said Kaiser Kuo, Director of international communications at Baidu.
And fresh from its record breaking IPO in September, Alibaba Group Holding Ltd. ADS is expected to start operating in Israel, according to three people familiar with the matter. The Chinese e-commerce behemoth is in the final stages of investing in an Israeli e-commerce startup, in what may turn out to be a base for an R&D center, the people said.
Alibaba declined to comment.
The deal-making extends to Israel’s biotech sector. Shanghai Fosun Pharmaceutical Group Co. is expected to beef up its Israeli presence with acquisitions of more companies, people familiar with the matter said. Last year Fosun Pharma acquired Alma Lasers, a company that makes advanced skin care products for $240 million. That deal was the first significant Chinese technology M&A deal in an Israeli based company.
A Shanghai Fosun Pharmaceutical spokesman said the company “will continue to pay close attention to the latest development in advanced technologies of the Israeli health-care sector, and is looking for opportunities in cooperation with Israeli companies.”
Write to Orr Hirschauge at Orr.Hirschauge@wsj.com