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Investing in Israeli tech: investors must bring more than just funding
ISRAEL - known as the 'Startup Nation', thanks to the high number of startups per capita - has long been recognised for its boundary-pushing technology solutions.
Many of its companies have been acquired by the who's who in the tech industry. Just this January, Amazon bought CloudEndure, an Israeli disaster recovery startup, for around US$200 million while Samsung, seeking an edge over Apple, acquired Israeli camera technology company Corephotonics for an unconfirmed US$150 million. Other acquisitions in the past include Israel's traffic and navigation app Waze, bought by Google in 2013; and a pioneer of self-driving cars Mobileye, acquired by Intel in 2017.
Israeli companies tend to play in functional spaces and the resulting tech can be surprising. Companies with the potential for a boom include those in the medical sector.
For example, one promising start-up has developed a brain health assessment tool that tracks neural-network changes and which can help healthcare professionals diagnose disorders from depression to Parkinson's disease. With insights into the brain, assessments for medication and their dosages (a notoriously difficult process to get right) can be much more accurate.
There are many companies in the retail sector as well, giving deep insights into consumer behaviour. Some technology captures data on how products move on the shelf, taking into account elements such as how well a product does against another on sale. Up until now, such reports were manually generated and often do not capture such information.
Other areas where Israeli technology is groundbreaking are in the spheres of cybersecurity, artificial intelligence, and agriculture.
ADDING SINGAPORE TO THE MIX
Singapore companies are no stranger to Israeli tech investments.
As early as 2012, Singtel made the news when it paid US$321 million for digital marketing firm Amobee. Last year, Temasek Holdings paid a reported US$250 million to acquire Sygnia, a Israeli cybersecurity startup founded by former members of Israel's 8200 intelligence corps unit. ST Engineering also opened an R&D centre in Israel to help develop autonomous buses, and led a US$18 million venture round for Radiflow, another cybersecurity startup.
What makes things interesting at the moment is that Israeli startups are increasingly looking at setting up their presence in Asia with Singapore as their preferred hub.
According to an Israeli economist, there are currently around 50 Israeli companies with regional offices in Singapore. Around half of those are startups.
Almost half of that number again are cybersecurity startups - no surprise since Israel consistently punches above its weight in this area. Others with offices here span the areas of fintech to e-commerce.
Not surprisingly, Singapore's stable working environment and government policies are two of the key factors behind this growing trend.
Last year, the Singapore Exchange (SGX) teamed up with the Tel-Aviv Stock Exchange. The aim: to engage technology companies seeking to penetrate Asian markets to list on both exchanges.
This is largely seen as a stepping stone for Israeli tech firms, especially those yet too small to be listed on Nasdaq, but which have ambitions to enter that territory. Here, they can gain experience, raise capital, and slowly edge towards their larger goal.
This has led to a relative ease with which Singapore investors can access information and make decisions on what companies to back.
Bank of Singapore is leading a charge forward and since 2018, we have been connecting investors with startups. In May this year, we collaborated with the Tel Aviv Stock Exchange to host an afternoon of presentations by these startups to potential investors. In September, we organised a trip to Tel Aviv, bringing a select group of clients to the city. There, clients met with chief executives of startups, saw first-hand the ecosystem that supports technology innovators, and gained insights into the latest technologies.
WHAT INVESTORS SHOULD KNOW
Most people are aware that Israeli technology companies are worth a serious look because of the sheer quality of the innovation. But there are some points for investors to note.
According to Yoav Saidel, head of Economic and Trade Mission at the Embassy of Israel in Singapore, investors should put money into an industry they themselves already know well. They should be able to understand the technology, see its potential, and recognise it as one of the best in its field.
The reasoning: the venture capital field in Israel is quite developed. Israeli companies will be most attracted to partner with Singaporean investors who have a strong network and who are plugged into the market. The companies will be looking closely at what insights investors can offer on business strategies in the South-east Asian market.
Said another way, Singapore investors who want to find the best opportunities should be willing to bring more than just funding to the table. As much as the startups are wooing the investors, the investors are also wooing them. The companies will be looking for the 'added value' any investor can bring in. This could be as important as the dollar amount of the capital invested.
If there's any parting advice that I can give, it is to be curious and ask questions. In general, CEOs and team members of Israeli startups are open to conversations and making connections. They are unafraid of hard and challenging questions that investors might have. So ask, be unafraid to discover, and plan your strategy.
- The writer is head of Ultra High Net Worth Segment at Bank of Singapore