Chinese investment in Israeli startup companies is surging, with the value of financing rounds involving one or more Chinese investors forecast to grow 54% this year, the IVC Research Center said Tuesday.
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The value of financing rounds involving Chinese investors has nearly tripled since 2012 to $302 million last year, and already in the first four months of 2015 the figure is at $117 million, Tel Aviv-based IVC said at an investor conference. Based on early-year trends, investment rounds with Chinese participation would reach $467 million this year, IVC said.
Michal Adam, the center's business development manager, said the Chinese were arriving partly because of Israel's technology prowess and partly because too many investors in their home market were chasing too few startups.
“There are more venture capital and private equity funds in China and more competition inside China for good deals, so they’re searching for deals outside, not just in Israel,” Adam told TheMarker.
IVC counts some 30 new Chinese investors in Israel since 2012,with companies like electronics makers Huawei and Desay looking for deals. Among the new entrants is Alibaba, the world’s biggest e-commerce company, which invested $5 million in the startup Visualead in January and said two months later it was putting money into Jerusalem Venture Partners’ VC fund.
China’s economic growth has been ratcheting down from the breakneck pace of the last decade, with a cooling housing market and slowing exports, investment and consumption knocking growth to a six-year low of 7% in the first quarter. Chinese companies are turning to technology to give them a boost.
“There is an understanding that technology and innovations is a key factor for continued growth, so they're looking in tech hubs around the world,” said Adam, whose company tracks venture capital and high-tech.
Apart from Visualead, some 80 Israeli companies have raised money from Chinese investors, 88% of it since 2011, according to IVC. In addition, 11 Israeli venture capital funds have raised capital from Chinese backers.
Some 115 Israeli tech companies have 138 representative offices in China, but that’s a fraction of the 1,299 IVC estimates are in the United States and 751 in Europe.
David Fuchs, managing partner of the newly formed Synergy Funds — a Shanghai-based investor that puts money into Israeli companies setting up China operations — said startups can tap even more Chinese capital if they have operations in China.
“Today’s Chinese VC market is growing by leaps and bounds – it was $15.5 billion in 2015 and in the first quarter it was $7 billion,” he told TheMarker. “What we’re seeing in Israel is the tip of the iceberg of Chinese capital. Startups [not operating in China] don’t have access to the iceberg below the surface.”
At Tuesday’s conference “Chinese Investors – Israeli Technologies,” speakers said Chinese investors were generally less sophisticated than their American counterparts and focused on how their portfolio companies could address the Chinese market.
“The most important thing is don’t try to explain to them how [the investment] will work for you, try to explain how it will work for them in China,” said Sharon Kedmi, CEO of Demeter AWE Holdings, an agro-tech investor and consultant. “It’s more comprehensible for them to know how your technology will work in China than in London or Bangalore.”