The intersection between banking and hi-tech

Israeli hi-tech has reached impressive heights in recent years.

By
December 27, 2018 22:14
3 minute read.
Leumi Tech CEO Yifat Oron.

Leumi Tech CEO Yifat Oron.. (photo credit: YORAM RESHEF)

 
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Israeli hi-tech has reached impressive heights in recent years, Leumi Tech CEO Yifat Oron recently told The Jerusalem Post.

Oron, who has decades of experience in investment banking and hi-tech, sat down with The Post to discuss the Startup Nation, the adapting role of Israel’s banking sector, and the recent and upcoming trends in the Israeli hi-tech scene.

“The hi-tech industry is critical in Israel; it is the growth engine of the economy, constituting about 40% of production and something like 10% of our GDP and workforce,” Oron said.

Yet, the booming success of the Israeli hi-tech market did not always translate into the banking sector, which has in recent years struggled to adapt to the ever-changing needs of hi-tech companies.

“Banking wasn’t seeing the effects of the Startup Nation in our figures, assuming that tech and the startup nation was so big, it should have been reflected in the banks’ numbers, but it wasn’t,” she said.

According to Oron, Bank Leumi realized this discrepancy nearly five years ago, when then-newly appointed CEO Rakefet Russak-Aminoach decided to focus on this strategically important field.
As such, Leumi Tech was established some 4.5 years ago, with the aim of specializing in banking for hi-tech and start-up companies.

“Not all bankers are familiar with the hi-tech world and its unique characteristics. In many ways, banking and high-tech are like oil and water, they don’t mix,” Oron explained.  “What characterizes hi-tech companies is that they burn or invest a lot of money to develop technology and to help steer growth, so these companies lose money initially.”

This modus of operandi does not mesh well with traditional banking in Israel which when evaluating a business for credit or a loan need to see profitability.

“We needed to become a bank that talks to the [hi-tech] companies in their own language, understands them and is not afraid when a company loses money. This of course involved creating a different credit mechanism,” Oron said.

Fast-forward nearly five years and today, Leumi Tech works with some 4,500 start-ups, accompanying them from their very first investment from family and friends through to making an exit or offering an IPO.

“It is also a strength for us that our structure is global; even though Bank Leumi is an Israeli bank, we have subsidiary companies in the US and the UK.  This is what a hi-tech company, which often thinks globally, needs,” she added.


With regards to the global market, Oron said that Israel is witnessing a “blissful phenomenon” with the entry of strategic global players into the Israeli hi-tech scene.

“There are tier-one technology players and mega international companies and corporations, not necessarily technological, who establish R&D Centers here,” she said. “We are also seeing a lot more investment coming from different geographies and different flavors due to Israel’s position as one of the top three technology hubs.”

“All this of course generates massive growth in both activity and scale up in the industry - a trend which is expected to continue in the upcoming year as well,” she added.

Today, Oron said around 85% of all money invested in hi-tech companies in Israel is by foreign funds.  In 2018, Israeli funds alone raised roughly $3 billion, this amounting to only 15% of all funding - leaving around a trillion dollars of dry powder money for investments in total accumulated.

In discussing future trends, Oron also identified a number of areas where the Startup Nation has become a global leader: mainly in the automotive, cyber, digital health, and artificial intelligence fields.

One worrying trend however, is the increasing scarcity of high-quality talent.  “There is an issue in Israel where people are asking if we’ve reached a glass ceiling,” she said.

Oron explained that there is a lack of mostly high level engineers and programmers, which is only expected to get worse in the next few years. 

Despite this negative trend, she said that solutions are available, mainly by tapping into Israel’s diverse society and making hi-tech more accessible to women, the ultra-Orthodox and Arab-Israeli sectors.

When asked how the Israeli hi-tech sector compares to the major hubs in Silicon Valley and in Europe, Oron responded that today there is no major difference between Israel and the West.

“Israeli companies learned very quickly to behave and feel and look like Western companies,” she said. “This is crucial for us in order to gain foreign investors and for us to continue to grow and become a really big global hi-tech ecosystem.”

This article was written in cooperation with Bank Leumi.

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