Israel’s Viola raises $100m. fintech fund, half for local firms

By MAX SCHINDLER
Updated: DECEMBER 8, 2017 01:39
Dollar and shekel, side by side (photo credit: THOMAS WHITE / REUTERS)
Dollar and shekel, side by side
(photo credit: THOMAS WHITE / REUTERS)
Israel’s Viola venture capital firm said on Wednesday that it has raised $100 million toward a $120m. to 150m. goal for its global financial-technology fund. Half the funds will be invested exclusively in Israeli-related start-ups, with each initial investment being between $3m. and $7m.
Viola, the nation’s largest technology investment group, is setting up its fintech fund with backing from international partners that include: Bank Hapoalim, Israel’s largest bank; the Travelers Companies Inc; Scotiabank; and European banks whose names cannot be disclosed at this stage.
The fund aims to have banks, insurance companies and asset managers collaborate with emerging online players. Fintech will allow users to lend, deposit funds and make payments from a computer or smartphone, rather than relying on manual, paper underwriting.
“We are looking for companies that are using advanced technologies to solve inefficiencies caused by regulation, unnecessary middlemen, manual processes, etc.,” Viola Fintech general partner Tomer Michaeli told The Jerusalem Post.
The fund is also expected to invest in fintech companies that focus on providing financial back-end services to small- and medium-sized businesses. While some Israeli firms have helped devise cutting-edge solutions for consumers and large corporations, smaller businesses are underserved in getting services from financial firms.
Few firms in the overall Israeli fintech ecosystem have targeted capital markets or business-to-client services. Instead, local companies are stronger on the business- to-business side, possibly as a result of Israel’s weaker customer service culture.
The fund’s co-founder and general partner is Daniel Tsiddon, former deputy CEO of Bank Leumi, the country’s second largest bank, along with Michaeli and Avi Zeevi, co-founder of Viola Group.
“Most of the investors are not Israelis,” Michaeli said. “This is the first time that they invest in Israel through this fund... It’s a huge vote of confidence for the Viola Group as well as for the wider Israeli fintech ecosystem.”
Israel is home to an estimated 470 fintech companies, including cybersecurity firms, according to the Tel Aviv Stock Exchange. Another 60 to 70 fintech start-ups are founded each year.
A problem facing many such Israeli companies is that traditional commercial banks are reluctant to open accounts and do business with them for fear of enabling the competition. And fintech companies are required to open bank accounts to avoid potential money laundering.
Fin-tech encompasses a number of vertical markets, including Blockchain, which allows the instant and secure authentication of documents; the Internet of Things; artificial intelligence; big data/analytics; capital markets; digital banking; payments; and anti-fraud tools.
For Michaeli, disruptive technologies such as Blockchain offer the potential to automate and validate ownership, permitting increased liquidity of illiquid assets, such as in commercial or residential real estate.
Many times, when there’s a real estate transaction, the pricing is not transparent,” Michaeli said. “One side has a lot of information, the other side doesn’t... Machine learning and big data can help in removing these information asymmetries. It can create much more efficient markets at better prices and as a result create much better liquidity.”
Last month, Viola Ventures announced the launch of a hi-tech fund for which it has received commitments of more than $170m. toward its goal of $200m. The early- stage fund invests in fledgling Israeli companies, writing checks between $2m. and $10m.
The Viola Group is based in Herzliya and manages some $2.8 billion in its portfolio of five funds.


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