By Simon Tobelem
For many, the first thought regarding Israel often focuses on a potentially complex geopolitical situation. However, there is much more to Israel, including being an interesting destination for investors.
For venture capitalists, this is not a new phenomenon and Israel has already established itself first runner-up to Silicon Valley in terms of number of deals completed, start-ups and level of investment into the tech sector.
One way in which Silicon Wadi (as it is often known) has managed to achieve this position, is the nation’s success in turning the serious issue of heavy military and security expenses into a competitive financial advantage by allowing soldiers of ‘Elite Technology Units’ to use defense applications and turn them into cutting-edge civilian solutions.
Added to this, the Israeli economy has impressively resisted the financial crisis of 2008, with an average growth above 2.5%. This can be attributed to a few key factors:
– The whole financial system is stable and most economic fundamentals of Israeli banks are very positive. Israeli pension funds are now routinely investing in Europe
– Israel is the country with the highest ratio of graduates in the World, allowing for super skilled workforce with employment costs on the lower range of the OECD
– The country is at the crossroads between Asia, Africa and Europe, with free trade agreements with both North-America and Europe.
The recent election should only confirm this trend, as the presumed new finance minister will push forward the deconcentration reform of the economy – forcing the 20 leading oligarchs to dispose of part of their assets.
In terms of tech investments in Israel, US-based investors lead the way. Not only is there a significant number holding key limited partnerships in leading Israeli VC funds, but there is a significant increase in direct investments for larger deals as well. China – a nation that had no investment presence in Israel a few years ago – is now the second largest VC investor in Israel, underlined by key deals such as BAIDU, TENCENT, HUAWEI, and of course, ALIBABA. This incredible economic pragmatism is not so irrational. Institutional investors in Europe on the other hand are lagging some way behind.
The combination of a strong economy, improving political support and the continued growth and success of innovation means European large private equity and institutional investors should undoubtedly be giving Israel a good look.
Simon Tobelem is a founding partner of ARIE Ventures, a UK based VC Fund, focusing on Israeli technologies
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