Israeli entrepreneurs have long oriented their long-term growth at overseas markets. But with a $300 million fund under its belt, Infinity Group is jumping past the usual destinations of the U.S. or Europe and heading straight to China.
“In China, it’s a greenfield for us,” said Amir Gal-Or, managing partner at Infinity. “You’d have more competition in the U.S.”
Gal-Or himself recently moved to Hong Kong, where the firm has three employees. An additional six apiece work in Shanghai and Suzhou, while 12 remain in the firm’s Tel Aviv office. The team is currently investing the $300 million Infinity I-China Fund, which closed last August and has already made six investments, including a mix of local Chinese start-ups, companies built around Israeli technology or a combination of both.
“Culture-wise, you are not competing with the Chinese; you are adding value,” he said. “Either you bring the experts or the IP or the strategic partnerships.”
One example is Oberon Media Inc., a casual-gaming start-up that was founded in Israel in 2003 and moved its headquarters to New York, with an R&D center in Tel Aviv. Infinity invested $20 million in Oberon last October in a funding round intended to bring the connections needed for the company to launch into the Chinese market. Other examples include Petah Tikvah-based Power Paper Ltd., which now does its manufacturing and design of its cosmetic patches in China; and Herzliya-based Teledata Networks Ltd., a telecom equipment maker that has secured a joint venture with a Chinese company.
Some established Israeli tech companies, like telecom equipoment maker ECI Telecom, of Petah Tikvah, have successfully established operations in China, but overall very few start-ups have followed this route over the years, especially since China and Israel have only had diplomatic relations since 1992.
Perhaps Israel’s biggest export to China is high tech. Established companies like ECI Telecom (ECIL), a producer of telecommunications equipment, initially followed the joint venture route. The company, based in Petah Tikva, Israel, entered China eight years ago through a venture with Eastern Communications Company (Eastcom), a leading Chinese manufacturer of cellular technology. But in 2006 ECI took over full control of the joint venture, which produces components for ECI products and more recently has started doing research and development work for its Israeli parent company. “Now nearly 10% of our 3,000 employees are located in China,” says ECI Chief Executive Rafi Maor
So far, Gal-Or said he has not encountered much competition from his fellow Israeli venture capitalists, none of whom he said have a local presence like Infinity. “It’s good to be so close to the market,” he said. “[Other Israeli VCs] could try to expand to China, but it took us five years, and we have a first-mover advantage.”
One big shift the firm is planning is a greater emphasis on the life sciences, Gal-Or said, declaring 2009 “the year of the medical deal” for the fund. “Given our core was IT, we needed to balance the fund,” he said, adding that government efforts to expand the level and quality of health care are making it a more attractive field.
The fund has already made one life science investment – telemedicine provider China Medicine On-Line Ltd. – and is planning to open a Beijing office this year to be closer to the country’s health care regulators and big industry players. While China Medicine is a native Chinese company, an Infinity spokeswoman said the firm is in the process of bringing some Israeli technology to complement the existing product.
Another promising area for Infinity is agriculture, Gal-Or said, and the company is wrapping up a funding round for an undisclosed Chinese water company. What both sectors have in common is that they are targeting local markets that are better off in an economic downturn. “Manufacturing made a very quick turnaround to the domestic markets,” he said. “Life science is more resilient that IT, and agriculture is very resilient.”
