Blog / Far East
Within a nation exceeding 8.5 million people, Israel is a world leader in technology and innovation, consistently producing an impressive number of tech startups. From drone technology and ride sharing applications, to unique online shopping platforms and breakthrough technologies in the field of life science, Israel’s tech companies cover a myriad of fields. It therefore comes as no surprise that Chinese investors are eager to delve into the countless possibilities, which stem from the advancement of Israeli tech companies. In 2015, Chinese investments in Israeli startups exceeded $500 million, unveiling a growth of more than 300 percent from 2012. Throughout 2016, significant conferences were held in order to introduce prospective Chinese investors to Israeli tech companies. In January 2016, a China-Israel Innovation Summit was held in Beijing, where hundreds of Chinese Investors attended, in order to meet various Israeli tech companies, with the potential for large investments. The Summit acts as a mediator between Chinese investors and Israeli tech companies. In light of the success of the January conference, a subsequent conference was held in September 2016 in Tel Aviv, where over 300 Israeli high-tech companies presented their ideas to 2,300 Chinese investors. In addition, in September 2016, a conference was held in Shanghai, where 100 Israeli high-tech and startup companies participated, joined by 1000 Chinese investors. Among the various investor companies, Alibaba, Baidu, Lenovo, SAIF Partners, GF Xinde and many more, joined the event. One of the conference’s partners was the ‘China-Israel Changzhou Innovation Park’, a bi-national government initiative, which has become a tech-hub for large Israeli tech companies to use as a means for penetrating the Chinese market. In recent years, Chinese investors have shown specific interest in the fields of life science, pharma, medical devices, agrotech, Fintech and e-commerce. Prominent examples of Chinese investments in these fields include, inter alia, the sale of cCam Biotherapeutics for approx. USD605 million and the acquisition by ChemChina of Adama Agriculture Solutions (and its subsequent sale to a fully owned subsidiary, Hubei Sanonda Co. Ltd.). In addition to the various Chinese investments in Israeli companies, China has reaped the benefits of Israeli companies operating in China. For example, Israeli-Chinese private equity firm Infinity Group and Neusoft Corporation have approved the establishment of a $250 million investment to back Israeli life science companies operating in China. Neusoft Corporation is China’s largest IT Corporation, holding a 50% share of the medical market in China. This fund will assist Israeli medical companies to connect with the Chinese market through the integration of cloud-based platforms, which assists Israeli life science companies with regulatory approvals and product promotion in China. Furthermore, Israeli entrepreneurs are highly sought after in China, predominantly in the fields of mobile and web technologies, gaming, cleantech, agrotech and digital health, which all go hand in hand with Israeli high-tech expertise. As with any investment in a different country, Chinese investors have had to deal with the prevalent challenges of investing in Israel’s tech companies. Aside from the language barrier, the differences between the Israeli and Chinese cultures have been a challenging stepping stone for Chinese Investors. For example, within Israeli culture, companies prefer transactions to be quick and efficient, while Chinese companies are patient with a more tolerant approach. In addition, there are numerous rules and regulations to be followed in China, while Israeli companies strive for instantaneous completion of contracts and agreements. This bridge is a test to the relationship between Chinese investors and Israeli tech companies. Regardless of the challenges facing Chinese investors in Israeli tech companies, these increasing investments and acquisitions allow for limitless possibilities in relation to research, development, marketing and expansion of the Israeli tech world. The evolving relationship between China and Israel demonstrates a promising future for Israeli companies and startups. Source: barlaw.co.il
For many years now, Israel's emergence and growth on the world's economic stage has captured the attention of national and private investors all over the globe. It is only in recent years, though, that this has come to include Japan. In the past few years, more and more Japanese corporations have opened R&D and sales centers in Israel, while business delegations are continually streaming into Israel. One of those companies which recently entered Israel is Fujitsu, the largest IT company in Japan and the fifth largest in the world. Technological Relationships Business relations between the countries received a substantial boost, after Prime Minister Netanyahu's visit to Japan in 2014. The visit led to an historic R&D agreement that included a Memorandum of Cooperation and a Memorandum of Understanding, both designed to foster relationships between the two countries and create cooperative endeavors in technology. In July 2015, this lead to three distinct joint industrial R&D projects and on February 2017 both countries signed a bilateral investment treaty. One of the attractive areas for Japanese companies is Cybersecurity; Japan has long recognized Israel's position in this area, and stands to benefit from Israel's knowledge base and growth. The agreement between Israel's Radiflow and Japan's NEC focuses on integrating cybersecurity with physical security. Another agreement, between VocalZoom Systems and Fuetrek, focuses on audio technology that hones in on a speaker's voice while eliminating background noise. These agreements just scratch the surface of the potential this relationship creates. Japan has long been a world leader in technology engineering, and Israel's prowess in these areas has led to a sustained boom period in startups and technology investment. Together, the countries should be ready to build new technological opportunities in finance, technology, agricultural technology, the Internet of Things, Automotive, Cybersecurity, and much more. Where Next? The interest factor is not a one way street. Israeli companies are also showing interest in investing in the Japanese market in various sectors. Both countries enjoy innovative entrepreneurs who are driven to constantly push the boundaries of technological development and advancement. This era of cooperation between Israel and Japan will most likely help to cement relations between the countries on various levels, such as mutual tourism and support in international forums. Source: barlaw.co.il
8 Things that Happened in the Israeli Hi-Tech World in 2016
January 4, 2017 / by Ariella Dreyfuss
January 4, 2017 / by Ariella Dreyfuss
It has been an interesting 2016 in the Israeli Hi-Tech world, here is a rundown of 8 things that happened, in case you missed them. Angels’ Law: In early 2016 an amendment to the "Angels’ Law" clarified the scope of the tax benefits available to private investors in new early stage start-ups; clearing the ambiguity that surrounded the law and had rendered it ineffective. Cash investments by angels in young Israeli companies in their initial research and development (R&D) stage can be recognized as deductible expenses for tax purposes, in an amount of up to NIS 5 million over a period of three tax years. The amendment is a temporary order and will remain in force until the end of 2019. SAFE: The Y Combinator’s “Simple Agreement for Future Equity” (SAFE), popular in Silicon Valley has become more acceptable in Israel. The “positive evolution of the convertible note” is not a debt instrument, it does not accrue interest, is not secured and is not repayable. It is essentially a deferred equity investment. While some argue that the SAFE is too entrepreneur friendly, others note that the protections offered by a convertible note are of little significance, as if the start up fails there is often little recourse for the lenders, if any. Hi-Tech Brain Drain: Avi Hasson, the Chief Scientist of the Ministry of Economy and chairman of the Israel Innovation Authority, voiced his concern that the “seven good years are over and that we are approaching our glass ceiling”. He explained that unless the government takes immediate action to educate Israeli students in the sciences, there will be an acute shortfall of engineers and programmers in the next decade. Drop in foreign VC Investment: The IVC Research Center noticed a drop in foreign investor participation in Hi-Tech capital raising in 2016, particularly by foreign VC funds. According to an IVC and KPMG report in the third quarter of this year VC-backed deals attracted $662 million, reflecting a 41% decrease from the previous quarter and a 24 percent year-on-year decrease; the lowest number in the past three years. However, Koby Simana, CEO of the IVC Research Center noted that this is a reflection of a global downtrend and not unique to Israel. Interest from the Far East: Interest from the Far East in Israeli Hi-Tech continues to spike. Hundreds of investors and entrepreneurs from the Orient have visited Israel this year to scout talent and the set-up of various incubators, accelerators and funds, including Techcode and The Kuang-Chi GCI Fund & Incubator, which has already invested around $4.3 million in the Israeli video analytics company - Agent Video Intelligence (Agent Vi). While Sony acquired Altair Semiconductor for USD 212 million earlier this year, just this month Taiwan's HTC Corporation and Quanta Computer invested US$30 million in Israeli augmented reality company Lumus which follows a US$15 million investment from China's Shanda Group and Crystal-Optech in the same company in June. Disinterest in IPOs: IPO’s are facing a downtrend, with few Hi-Tech companies choosing to go public as an exit strategy. An exception to the rule is trendIT, an analytics company that floated on the London Stock Exchange in the first quarter of 2016 raising $5.9 million at a $17.6 million valuation and smart VoD company Vonetize that raised NIS 16 million on the Tel Aviv Stock Exchange; a far cry from the highlight of the Mobileye IPO on the NYSE in 2015, which raised $1.02 billion at a $5.3 billion valuation. Crowdfunding: Israel is seeking to soften the regulatory hurdles to crowdfunding and will allow small start-ups to crowd fund without the need to issue a prospectus (which can be an expensive and time consuming task). Although the applicable regulations have been slow coming (a year now) it is believed that the Securities Authority has some sympathy for the trend. The current expectation is that investments of up to NIS 10,000 per investor for each investment, and NIS 20,000 per investor in the aggregate per annum will be exempt from the need to issue a prospectus. In addition, the relevant company will be limited in the aggregate amount it can raise through crowdfunding per annum, and the expectation is that the cap will be several million NIS. In the interest of protecting the public, the regulations will require that at least one accredited investor participates in the crowdfunding and that such crowdfunding is executed through an internet portal regulated by the Securities Authority. New Licenses in FinTech: With the aim of combatting financial crimes and money laundering and regulating the growing field of FinTech, a new law – the Control of Financial Services (Regulated Financial Services) Law - was adopted in August. The new law requires that credit providers and providers of financial asset services hold a license (as of June 2017 and June 2018 respectively) and will be subject to supervision by a new financial regulator. The licenses are subject to certain thresholds, including minimum equity (starting from NIS 300,000) and corporate requirements (for example board composition). Now bring on 2017! Originally published on the “TOI website”
China has a long-held reputation in the international community for being closed off from outsiders — a reputation that it cultivated for thousands of years. In recent decades, however, this past custom has rapidly been changing and China has become a world leader in manufacturing and production, leveraging a large population and an immense technological skill base. Today China is pushing for more growth, looking to drive innovation to launch its economy into the future. This has led to a trend of opening up to the world, and in keeping with that trend, China has begun to reach out to Israel. Today Israel is only the third country with which China has developed a multi-visit visa program to encourage business and tourist travel. This highlights the importance of Israel's role as an innovation center for new technologies, particularly in the fields of Agrotech, Healthcare, Fintech and cyber security, and China’s desire to strengthen its cooperation with Israeli technology companies. In March, Prime Minister Benjamin Netanyahu and Chinese Vice Premier Liu Yandong announced that Israel and China were starting negotiations for a bilateral free trade agreement. A free-trade agreement between Israel and China may not only increase the gross national product of both countries, but also would most likely double the total value of traded goods between both countries, which currently stands at $8 billion. Challenges to NavigateThe two countries have much to offer each other, and the ability of Israeli companies to offer technological solutions which are applicable to the needs of the Chinese market is of significant interest to the Chinese government and Chinese investors and companies. Despite the many advantages which such cooperation can yield to both countries, there are many obstacles which hinder the cooperation between the two countries, such as cultural gaps which have a material effect on negotiations and the ability to locate a strategic partner on the other side, as well as differences in each party’s expectations with regard to a given transaction. Whereas many Israeli entrepreneurs and companies set their companies up for future exits, Chinese investors are in search for technologies that could benefit the Chinese market and therefore are looking for long term projects that are not necessarily focused solely on their return on investment. In addition, another challenge which is inherent to Israel- China collaborations is the need to be familiar with Chinese laws and regulations and the ability to navigate the heavy bureaucracy which is associated with operating in China. In order to overcome the above challenges it is highly recommended to receive counsel from professionals who possess the know-how which in bridges the cultural and legal gaps between the parties, and who can advise on certain material issues which are synonymous with doing business in China, such as proper tax structures, or expatriating funds which were generated in China. For assistance in these challenges, please speak with the experts at Barnea & Co., and we will get you started on the right path.