For China, Israeli tech is a bargain basement deal

"Compared to Silicon Valley, the valuation is usually less,” says Chinese businessman.

By NIV ELIS
Updated: MARCH 23, 2016 05:24
GMIC conference and fair in Tel Aviv (photo credit: NIV ELIS)
GMIC conference and fair in Tel Aviv
(photo credit: NIV ELIS)
Israel is known as one of the world’s most prolific producers of cutting-edge technology in the world, but for Chinese investors, there is another draw - relatively low valuations.
“In terms of the uniqueness of the Israeli market in the tech area, a lot of the technology and teams are very high quality, but compared to Silicon Valley, the valuation is usually less,” said Alex Yao, senior vice president of strategy, innovation and investment at Cheetah Mobile, a Beijing-based company.
Many Israeli companies see China as a potentially enormous market for their products, but it increasingly is becoming a source of investment, as well.
Last year alone, Chinese companies invested about $500 million in Israeli companies.
Yao spoke to The Jerusalem Post Tuesday at GMIC, a large China-based mobile conference making its Tel Aviv debut.
The reason Israeli companies have lower valuations than those in China and the US despite having great technology, he said, was that they are not attached to a naturally large consumer market and rely largely on foreign acquisitions or initial public offerings when seeking exits.
Edwards You Lyu, co-founder and CEO of the Israel-based, China-owned company VADI, said the problem also had to do with supply and demand for capital.
“In China and Silicon Valley, there is too much capital chasing a limited number of startups but Israel has comparatively more start-ups with insufficient capital investment,” he said. “But as more and more Chinese investors come to Israel, I predict that the price will be higher in two or three years.”
Jon Medved, CEO of equity crowdfunding platform OurCrowd, said the interest by Chinese capital was more than welcome.
“For us, the business potential is tremendous,” he said, referring to China as both a source of investment and a market.
“Here’s what people are missing. China is the world’s second market today. And, with all due respect, people are surprised that there’s this huge business. It’s like someone asking ‘Why is there so much talk about Silicon Valley,’” he said.
The fact that Israeli companies may be valued more affordably than their American and Chinese peers, he said, only increases their attractiveness at a time when Chinese stocks are falling and its economy is slowing.
The downturn, he said, is also an opportunity for Israeli companies seeking Chinese investment because it offers a safer, dollar-denominated investment abroad.
Given the Chinese business environment, he said, there is room for joint ventures that will ultimately be listed in China.
“I think smart Israelis will start taking advantage of that,” he said.