Thursday, September 25, 2014

Chinese Firms Swoop Into Israel Looking for Tech Investments

Published on The Wall Street Journal

By: Orr Hirschauge  

TEL AVIV—Chinese investors are pouring millions into Israel-focused, tech-investment funds—as well as launching their own funds and investing directly in Israeli startups—amid a frenzy of tech investment and deal making here. 
Yongjin Group Inc., a Chinese equity-investment management and financial- services company, has put between $15 million and $20 million into Israeli venture fund Pitango Venture Capital during the past year, according to people familiar with the matter.
Lenovo Group Ltd., the big Chinese computer maker, meanwhile invested around $10 million in Canaan Partners Israel, a venture fund affiliated with American-based Canaan Partners, in late August. 
And Ping An Venture, the venture investment arm of Ping An Insurance (Group) Co., one of China's biggest financial conglomerates, in November created a $100 million fund dedicated to U.S. and Israel tech ventures. It has made six investments in Israeli startups so far, said Jiang Zhang, an associate director at Ping An Ventures.
The moves come amid a frenzy of fundraising among Israeli entrepreneurs. Israeli and foreign investors—lured by a drumbeat of stock-market listings and acquisitions among Israeli tech startups—have rushed in. In the first half of 2014, 335 Israeli high-tech companies raised a record $1.6 billion in capital, according to estimates by consultancy IVC Industry Analytics and KMPG. That was 81% higher than in the year-earlier period.
While Israeli, European and American investors have long trawled Israel for tech opportunities, Chinese investors are relatively new here. Industry insiders say so far they have preferred longer-term bets and looked for technology that is already being used back home, or sought investment possibilities there. 
"Most of the investments we're seeing are strategic investments and not purely financial ones," said Yoav Sade, a partner in law firm Meitar Liquornik Geva Leshem Tal and vice chairman of the Israel-China Chamber of Commerce. 
"Chinese investors would look for tech companies that already have a product and sales with an added value that has to do with China," said Mr. Sade. "Many times the investment contracts include commercialization licenses for operations in China."
In July, Chinese venture fund SAIF Partners participated in a $15 million funding round in app-monetization company SupersonicAds Ltd. It was SAIF's first investment in an Israeli company, according to Ben Ng, a partner at SAIF Partners, who joined Supersonic's board following the investment.
At the same time, Supersonic announced plans to expand its business in China, Japan and India, saying it intended to open offices in Beijing, Tokyo and Bangalore.
"For the last two years, SAIF has been looking to expand its portfolio with a cross-border view. We're looking at companies in Israel" and Silicon Valley, said Mr. Ng.
Ping An and Chinese venture investor China Broadband Capital Partners LP took part in a $85-million, pre-initial public offering funding round in adware company IronSource Ltd. IronSource launched its Chinese branch with offices in Beijing this week. 
Despite these direct investments, much of the early money is being funneled through Israeli funds. Chinese Internet-security company Qihoo 360 Technology Co. Ltd. and web search giant Baidu Inc. have both invested in Carmel Ventures, an Israel venture fund, according to people familiar with the matter, with Qihoo putting in about $10 million in early 2014. Qihoo has also invested money with Jerusalem Venture Partners, according to people familiar with the matter.

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