When Wu Bo, a Chinese angel investor from Shenzhen, decides which start-up to invest in he doesn’t need to see a company portfolio.
Instead, he is concerned with a much smaller document, a passport.
So when he happened to bump into an Israeli entrepreneur on a flight from San Francisco, a follow-up dinner meeting was quickly arranged. Once at the table, Wu wasted little time in getting to the point: “Can I invest in your company?”
Then, he asked his second question: “What do you do exactly, by the way?”
In an interview with This Week in Asia this month, Wu said he still didn’t fully understand the business model of his prospective investee.
“I wanted to invest in it only because the founder is from Israel,” the 45-year-old said.
Wu might be an extreme case of how investors choose their stable of companies. But he is part of a growing number of Chinese investors who view Israeli businesses as the next smart buy, fuelled by China’s soaring demand for advanced technologies and the warming relations between Beijing and Israel.
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China’s total investment in Israel almost tripled last year to US$16 billion (HK$125 million), largely driven by a surge in funding in Israel’s hi-tech industry, according to ZAG-S&W, a Tel Aviv-based law firm specialising in cross-border transactions. Meanwhile, the number of deals involving at least one Chinese investor in Israel’s hi-tech sector also increased by 16 per cent year-on-year, shown in data from Israel’s IVC Research Centre.
Although China’s interest in Israeli tech start-ups is not entirely new – Horizons, a venture fund backed by Hong Kong tycoon Li Ka-shing, invested in the navigation software Waze as early as 2011 – industry players say it is new to see Chinese investors flocking to Israel in a such a large scale.
Sino Israel Technology Innovations is now in talks with 50 Israeli start-ups, according to Michael Ruan, chief representative of the Shanghai-based start-up accelerator and venture capital firm. The company has poured US$3 million into three early-stage Israeli smart-device makers this year.
“We plan to invest in at least 20 more Israeli companies next year,” Ruan said.
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Jerry Bai, a co-founder of Glory Ventures in Shanghai, attributed China’s growing appetite for Israel’s technologies to the country’s progress in moving from making cheap clothes to highly skilled manufacturing. Take consumer electronics for example.
Once a little known company, China’s Oppo recently surpassed Samsung to be the bestselling Android smartphone brand in the world.
“With Chinese brands rising to compete with Western firms, they will need to seize control of core technologies,” Bai said.
China’s investment in technology abroad is estimated to have more than doubled to US$37.8 billion last year, according to Bloomberg. But as the battle for tech start-ups in Silicon Valley has heated up, some investors like Bai have turned elsewhere. Israel, reputed for its start-ups, seemed to be a reasonable option.
In 2016, Glory Ventures raised an Israel-focused fund from several Chinese internet giants. Within less than a year, tens of million of US dollars were invested in 10 Israeli start-ups focusing on big data, artificial intelligence and the internet of things, Bai said.
The ultimate goal, he said, was to produce cutting-edge technologies from Israel and sell them in China.
To be sure, this is not the first time venture capitalists have tried to marry Chinese money with Israeli technologies. Cao Xueling, a director of Peakview Capital in Beijing, made her first approach in 2012, but received the cold shoulder from Israeli entrepreneurs.
“They kind of looked down at me,” Cao said with a laugh. “In their mind, Chinese investors had nothing but money. And [the Israelis] were not short of money.”
But that was then. With China now the biggest consumer market in the world – US$25.3 billion worth of goods were sold within 24 hours during the country’s Singles' Day online shopping festival this year – Cao’s team and other Chinese venture firms are increasingly welcomed in Israel’s tech world.
“For Israeli companies, the Chinese market is too big to be ignored,” she said.
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Political considerations have also become a factor. Since President Xi Jinping inked an agreement with Israeli Prime Minister Benjamin Netanyahu in 2015 to boost cooperation on technology, government-backed programmes devoted to investing in Israeli tech start-ups have mushroomed.
Ruan, of Sino Israel Technology Innovations, said about a third of his US$50 million funding came from Chinese authorities. While Cao of Peakview Capital did not receive any government funding, she said her interest in Israeli start-ups was partly fuelled by Israel’s status as a member state of the “Belt and Road Initiative”, a development strategy under Xi to revive the ancient Silk Road and boost global trade.
“As a cross-border investor, we always want to ensure our targeted regions are in line with Beijing’s preference,” Cao said. “This way, we can run our operation more smoothly.”
But still, there are roadblocks. Some Chinese investors experienced cultural clashes with Israeli entrepreneurs whose straightforward communication style is often viewed as rude in China.
Other barriers to communication also present challenges. Unlike the US, which is home to nearly 3.8 million Chinese, Chinese communities in Israel are almost non-existent, making it hard for Chinese venture capital firms to find the right person to help facilitate the conversation.
The strongest headwind, however, comes from Beijing. With a record US$640 billion leaving China last year to invest in foreign interests, the Chinese government in recent months has imposed restrictions on the flow of Chinese money overseas in a bid to stabilise its economy.
Tehila Levi Lati, who leads the China programme at the Israeli law firm ZAG-S&W, said that out of eight investment deals she has helped facilitate this year, only one received a go-ahead from Beijing. Similar stories have also been told by other investors.
But that does not stop Wu, the businessman in Shenzhen, from pursuing his investment plan. When asked if he would be able to move money out of China amid the government crackdown, Wu answered without a pause: “Yes, of course.”
The angel investor, who operates a US$1 million budget, then made a comment that sounded like a Chinese regulator’s nightmare but an Israeli entrepreneur’s dream.
“If the start-up is attractive enough, nothing seems to be a problem for me.” ■
