Israel is planning to establish a US$200 million loss-protection fund exclusively for Chinese investors who embark on venture capital (VC) and private-equity (PE) initiatives in Israel.
Eligible substantial Chinese investors will be entitled to a 15 percent loss-protection on the invested capital, subject to a maximum amount of US$50 million for each transaction, according to information disclosed at an Israel investment forum in Hong Kong on Monday.
The initiative is aimed at helping investors hedge their risks and promoting deeper Israel links for Chinese entrepreneurs, Ziva Eger, director of foreign investment and industrial cooperation at Israel’s economy ministry, said at the forum.
Details of the scheme will be announced later.
Israel is currently home to about 5,000 start-ups, despite having a population of just 8.1 million, making it a hub of innovation next only to Silicon Valley in the US.
In the past week alone, although it is not a typical one, about US$770 million in exits through acquisitions and US$140 million was raised in start-up funding, involving internet giants like Amazon, Microsoft and Alibaba, officials said.
However, dedicated venture capital available to the increasing number of start-ups has been decreasing in recent years.
Chinese investors have sensed the opportunities. Recent years have seen a steady flow of Chinese investment and interest in Israel’s innovation industry.
According to the National Economic Council of Israel, trade between China and Israel is expected to reach US$300 million in 2014, compared to only US$50 million in 2013.
“From an investor’s stand point, the ratio in Israel of dedicated dollars chasing deals to companies created is the best ever,” Saul Singer, co-author of “Startup Nation: The Story of Israel’s Economic Miracle”, noted at the forum.
Speaking on the sidelines of the forum, Singer later told EJ Insight that if China wants to create a mature startup sector like that in the Silicon Valley, a few well-known cases like Alibaba and Tencent won’t be enough.
The country needs many success stories of companies that are turning international and innovative if it aims to attract more VC investment and push the tide of start-ups, he noted.
Unlike China where most start-ups are busy serving the huge domestic market, Israel has no big market at home.
“Not having a market has become an advantage” for Israel, as it forced the Israeli start-ups to think globally in the first place, Singer said.
In other comments, he said that China and Israel should combine their strengths.
Representatives from 20 Israeli venture capital funds, including Canaan Partners Israel, JVP, SNE Ventures, attended the forum in Hong Kong Monday.
The group, which was touted as the largest and “most prestigious” delegation of Israeli funds ever to visit China, will travel to Beijing and Shanghai in the next leg of their trip.
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