It was recently reported that a small Israeli startup called Trax Technology
raised $6 million in funds from an undisclosed Singapore-based venture
capitalist. Trax, contrary to the common trend of Israeli start-ups basing their
R&D center in Israel with their management staying in the US, decided to
base its management in Singapore.
From the perspective of someone not
involved in the Israeli start-up scene, this would probably not be a big deal,
and may even be perceived as a very logical step. Singapore has a highly
developed financial eco-system, an active governmental policy of making it the
Silicon Valley of Southeast Asia, and an English- speaking and friendly
environment for Israelis.
Singapore might just seem like the perfect
place for Israeli start-ups to place themselves in a world which is shifting to
But if that’s the case, why don’t we see many more examples
like Traxs? This seems to be the million-dollar (or more) question.
Hong Kong-based investors such as Li Ka- Shing’s Horizons Ventures are storming
the Israeli start-up scene with tens of investments in Israeli start-ups in the
past year, and taking advantage of the current weakness of their US and European
counterparts, why aren’t their neighbors in the Lion City doing the same? Here
are my two cents.
It’s all about culture, dummy! Should you ask most
Singaporean investors, and most Israelis who have had the opportunity of doing
business with Singaporean investors, they will probably tell you that the
cautious Singaporeans are just not willing to take the risks involved in
investing in Israeli start-ups.
Research shows that only 10%-15% of
start-ups able to secure initial financing will ultimately be
For the average Singaporean investor, the notion that he has
a good chance to lose nine out of his 10 investments is the equivalent of losing
a kidney – let’s just say this is a situation he would prefer to
This risk-averse approach sometimes leads to nonrealistic
expectations and results in the Singaporean investor looking for a profitable,
medium-sized startup with strong sales, global reach, and, if possible, backing
by a strong American or European VC. Or as we call it here, a nonexistent
Most Singaporean investors do not see themselves bringing any
added value to a start-up unless the start-up is either based in Singapore, in
another place in Asia or has strong links to Asian markets. Most Israeli
start-ups will find this hurdle hard to overcome since most are US- and
Europe-oriented, and view the Asian markets as not relevant for them, at least
not in their early stages.
There are only handful of Israeli start-ups
that view Asia as their main market, and even then some are irrelevant to
Singaporeans, who tend to prefer investing in software and medical devices
companies and less in fabless companies, which are typically the type of Israeli
start-ups active in Asia.
Sometimes, even if we are able to locate a
start-up which is profitable, at a mature stage, in a relevant industry and that
wishes to expand in Asia, we will still encounter what I call “the chicken and
Many of the Singapore-based investors, especially the
Global Investor Programme Funds (“GIP”), have a mandate to invest only in
companies which are physically based in Singapore or in other places in Asia.
This means that a start-up must have either its management or R&D in Asia
(preferably in Singapore).
Now the tricky issue is, what comes first? The
money or the company? Since one of the only personality traits that Singaporeans
and Israelis share is a deep distrust of their business partners, this has
proven to be a challenge that only a select few have been able to
ALTHOUGH IT may seem that the match between local start-ups and
Singaporean investors is something which was never meant to happen, reality and
life have proven otherwise. Singaporeans, fast learners, have watched the recent
exits such as the Waze deal, in which Asian investors took home jackpots, and
are aware of the potential. The recent acquisition of Amobee by Singtel and its
recent opening of a start-up screening center (in partnership with Amdocs) in
Israel, show that the winds of change are already here.
influx of “Silicon Valley graduate” investors to Singapore, who bring a bit of a
different approach to the Singapore VC scene, together with more success stories
of Israeli start-ups in Asia, will hopefully bring more and more Singaporean
investors to look at Israel as a place for investments, rather than only for
procurement of top-notch technology.Gilad Shay is an associate in Herzog
Fox Neeman’s Commercial and Intellectual Property department.This post
and others in various law fields can be found at Herzog Fox Neeman’s law blog,