China VC Fund Formed to Invest in Israeli Life Science Startups

The $100 million Guangzhou-Israel Bio Fund will focus on forming joint ventures with Israelis in China.

Haaretz

Yehoshua Gleitman, a former chief scientist at the Economy Ministry, has formed a $100 million Chinese venture capital fund to invest in Israeli life science companies, in a move marking a major new step in the two countries’ high-tech partnership.

The Guangzhou-Israel Bio Fund will be managed by a joint Israeli-Chinese team headed by Gleitman. Its backers include the Guangzhou municipal government and three Chinese companies, among them one of the country’s biggest pharmaceutical firms.

“Life sciences is one of the most developing fields in China, which has set itself an ambitious target, namely that 3% of gross domestic product will come in another 15 years from activities in this area,” Gleitman said.

“Living standards are growing quickly and a growing middle class has created huge demand for advanced medicine. As a result, the pace of change and the transitions from traditional medicine to Western medicine have been great,” he said, predicting that China would become in less than a decade the world’s largest market for drugs and medical devices.

The fund will invest in Israeli biotech and medical device startups that are at a relatively advanced stage in developing new technology and are relatively low-risk investments. They will be offered to set up Chinese subsidiaries in Guangzhou that will be responsible for completing development and enjoy exclusive rights in the Chinese market.

The fund said it was already investigating collaboration with five Israeli startups in pharma and medical devices.

Gleitman said the Guangzhou subsidiaries would be operated as equally owned joint ventures between the Israeli startups and the fund. A startup would transfer all knowledge right rights for the Chinese market to a joint venture but retain them for other world markets.

In return, the Guangzhou-Israel Bio Fund would fund the joint venture and help ensure it an attractive exit; for example, through an initial public offering on the Chinese stock market.

The fund was set up to run for seven years, with investments being made over the first five. The fund managers will take a 2% management fee.

“We believe that this is an innovative model with many advantages for Israeli companies,” Gleutman said. “Penetrating the Chinese market is very difficult if not impossible for Israeli companies. Beyond the ordinary problems of language and culture, in life sciences you have to cope with local regulations that are very complicated.”

He cited a tendency for Chinese regulators to favor local players and in many cases bar imports altogether. “So for foreign companies with limited resources we’re talking about a long process with low chances of success,” he said.

Gleitman added that the fund’s Chinese investors had asked the Israeli members of the management team to build a platform that would enable the companies to invest directly in the Israeli startups forming joint ventures with the fund.