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Recent Linkups By China-Israel VCs And Tech Startups Spell More Opportunity Than Risk

This article is more than 8 years old.

It’s long been said that Chinese and Israeli culture is alike – entrepreneurial, hard-working, family oriented and spiritual.

Now these two leading startup nations are coming closer together in the venture capital and technology innovation world and advancing the potential for disruptive breakthroughs.

Chinese investment is flooding into Israel’s venture capital funds and high-tech companies. This year, some $500 million worth of high-tech financing and $750 million of VC capital will include at least one Chinese investor, estimates IVC Research Center.  As many as 80 Israeli companies and 11 Israeli venture capital funds have raised money from China sources, mostly since 2011, IVC reports. The trend line is definitely upward. China-Israeli tech deals totaled $300 million in 2014, up from $50 million in 2013, according to Israel’s National Economic Council.

Chinese companies are scouring Israel in search of leading edge technology that can complement the Mainland’s own strengths as a rising innovation nation. This parallels a hunt by Chinese tech titans in Silicon Valley for the next new thing.

Israeli companies are looking to China for market expansion opportunities. Both countries are leveraging their scientific and research knowhow and joining together to enhance progress in a next generation of technology. China is expected to soon surpass the U.S. as Israel’s biggest collaborator in the number of joint government-backed development projects, says Avi Luvton, executive director for the Asia Pacific region at the Israeli Industry Center for R&D (and a featured speaker December 2 at Silicon Dragon’s Tel Aviv forum.)

Whether issues over intellectual privacy protection will arise for Israeli strongholds in biotech, cybersecurity and software remains to be seen. If Silicon Valley’s experience is a gauge though, the increasing cross-border investment between Israel and China could be mutually beneficial. Founders of tech startups in the Valley with recent investment by China tech leaders say their businesses are progressing faster with China capital and through introductions and collaborations, easier access to the large Mainland markets. For their part, leaders of China’s tech titans that have planted R&D, business development and sales offices in the Valley are gaining by learning more about a culture where it is ok to fail – and then get up and try again. They are getting a look at some of the earliest invented-here technology – natural since Silicon Valley still reigns as the world’s leading hub.

China is climbing the innovation ladder quickly. This nation once known for low-cost manufacturing ranks third (after the U.S. and Japan) in the world for new patent applications, up from 8th place in 2006, according to WIPO data. Large Chinese companies such as Huawei and ZTE are patent leaders.

A look at the influx of money into Israel in just the past few years from China is telling. Li Ka-shing’s Horizons Ventures has invested in 291 Israeli startups including Waze, and donated $130 million in 2013 from that winning deal to the prestigious Technion Institute of Technology. Ping An Ventures, the VC unit of the major Chinese financial service, has made eight investments in Israeli startups, participating with China Broadband Capital Partners in a $85 million funding in IronSource and co-leading a $27 million financing of Israeli online trading platform eToro Group in late 2014.

China’s tech titans are not about to left out. Early this year, Alibaba made its first investment in Israel, putting $5 million in the startup Visualead and its QR technology. Alibaba additionally has invested roughly $10 million in leading Israel VC fund Jerusalem Venture Partners. JVP managing partner Kobi Rozengarten furthered the firm’s ties to China by striking a deal with Chinese accelerator Shengjing 360 that launched a global startup competition with a grand prize of $1 million.

Over the past 15 months, Baidu has backed three Israeli startups: $3 million in video capture firm Pixellot plus investments in content marketing platform Taboola and music software company Tonara. This past year, Baidu and Qihoo 360 invested $194 million in Carmel Ventures. Meanwhile, in 2013, China’s leading edge tech startup Xiaomi co-invested $11 million in Pebble Interfaces, a developer of motion gesture technology.

Large conglomerate Fosun is a particularly active Chinese investor in Israel biotech, making two acquisitions of medical technology companies (Alma Lasers for $240 million and buying its leading rival Lumenis), in addition to investing $25 million in Ornim Medical and making a $30 million outlay to take a controlling stake in Ahava in a related cosmetics field. Additionally, Fosun acquired Israeli insurance provider Phoenix.

Such deals and others are well documented in a new book, China and India: From the Silk Road to Innovation Highway. Co-authors Lionel Friedfeld and Philippe Metoudi (who are speaking at Silicon Dragon Tel Aviv 2015) further note that Huawei and Haier have opened R&D centers in Israel. Look for Alibaba, Baidu, Fosun and Xiaomi to follow.

Notably, both Israel and China have seen a recent surge of venture capital investment in high-tech companies. In China, VC investments in technology startups more than doubled to $6 billion from $2.8 billion in 2013, according to AVCJ Research. This year’s figure should be much higher, given the number of unicorn financings in China during the first few months such as in drone maker DJI.

Israel too is on a big venture upswing. For the first half of 2015, 342 companies attracted $2.1 billion, up from 334 companies that drew $1.6 billion the first six months of 2014.

Perhaps not too surprisingly, Israel’s status as a scale up nation is supported by a relatively small VC pool of $2.1 billion, compared to China’s $16 billion in the global VC market of $50 billion.

What’s at stake here if and as more collaborations emerge is how economic development will be enhanced in both markets and how technology leadership will be shaped, even rivaling Silicon Valley’s lead. China and the U.S. have for several years been closely aligned in venture investment and tech innovation trends, and now Israel adds a key third angle on this developing picture.

These trends will be explored by many leaders in tech and venture at Silicon Dragon’s inaugural forum in Tel Aviv, Dec. 2.