On June 18, Israel’s most prominent high-tech investors met at the invitation-only “IT TECH TWO TO TANGO” conference  in Tel Aviv. Representatives from leading venture capital firms discussed the challenges facing the high-tech industry, the recent wave of Israeli growth companies, strategic fields of investment, and investment strategies for the coming years.

The event was hosted by Calcalist (a Hebrew wordplay on The Economist)–Israel’s leading daily business newspaper—and CTech by Calcalist in collaboration with Labs Israel, a co-working office space under the Teddy Sagi Group.

Participating in the conference were some of Israel’s leading financial forces and big-name investors, including:

  • Hanan Brand from Cornerstone Venture Partners
  • Yair Shoham, the manager of Intel Capital Israel
  • Arik Kleinstein, the founding managing partner at Glilot Capital Partners
  • Adam R. Fisher, partner at Bessemer Venture Partners
  • Michael Eisenberg, the managing partner at Aleph
  • Daniel Cohen, general partner at Viola Ventures
  • Aaron Mankovski, managing general partner at Pitango
  • Erez Shachar, co-founder of Qumra Capital
  • Aya Peterburg, managing partner at S Capital
  • Jonathan Medved, CEO of OurCrowd
  • Amir Lahat, partner at Olive Tree
  • Sigalit Klimovsky, partner at Grove Ventures
  • Ofer Schreiber, partner at YL Ventures
  • Rutie Adar, director, head of Samsung Strategy and Innovation Center, Israel

Corporate Investors Provide Insights

Samsung’s Rutie Adar and Intel Capital’s Yair Shoham took part in a panel on “corporate investment strategies” moderated by Justine Zwerling, head of primary markets for the London Stock Exchange.

“We invest in the data economy. Data will influence every aspect of our lives,” Adar said. “All markets will be influenced by the ability to access data, process it, and gain insights from it—including health care, transportation, and even retail. Those who own the data own the market. In evaluating potential investments, we are looking for companies that have a strong data play and can become category leaders based on it.”

Adar said in her opening remarks that Samsung is a strong investor in Israel through its three investing arms, having invested in more than 40 companies in the last four to five years. “One quarter of Samsung Catalyst Fund’s investments are in Israeli companies,” she added.

According to Shoham, “A big part of making a company successful is finding the right partner for you and being completely transparent with them.” He said that Intel is looking for companies that understand how to use data to create new business models.

“This is a business of people, rather than technology,” Shoham said. “The success of a company lies in the people that are together in this roller-coaster ride, involved in working on it together.”  Both Adar and Shoham noted that companies with corporate venture capital (CVC) participation saw both higher rounds and higher exits.

Trends in Israeli Startups

In another interesting session, Pitango’s Aaron Mankovski described growth (blitzscale) startups that started in the United States in 2009 and came to Israel three years later.

“There are companies with high valuations in Israel, but today we have the highest number in history of companies with more than $100M sales that justify such valuations,” said Mankovski. “Pitango has seven of those! We never had such a number.”

He said that corporations no longer want to buy technology per se, but instead want to buy businesses based on technology. Bessemer’s Adam Fisher reacted to that observation with a tip to investors: “Find the next blitzscaling category leader” and concluded: “There will always be buyers in high valuations. We see new players with deep pockets.”

Another tip for startups, this one from Glilot’s Arik Kleinstein, was that raising a lot of capital at the seed stage to accelerate growth doesn’t always work because some processes take a long time to realize. “This strategy risks burning a lot early on, making it painful to raise follow-on capital,” he said.

Qumra’s Erez Shachar said that it is easier today than in the past to do B2C because there’s no need for retail space and no need for branding via TV commercials. “The digital age enables direct-to-consumer marketing, and data drives the interface to consumers,” he said.  He suggested using big data AI to distinguish signal from noise.

“Customers don’t tell us what they need (marketing panels and focus groups are out), but we can recognize what they want by analyzing their behavior data,” said Shachar. “They who own the data own the market. If data is the new oil, then Israel is the new Saudi Arabia.”

Cornerstone’s Hanan Brand shared international venture capital (IVC) slides of funding, exits, and per-round size demonstrating how Israel? has dropped from 1,362 new startups established in 2014 to only 727 startups established in 2018.

“There are some explanations,” Brand said, “such as moving from mobile apps to deep tech, inflation of past numbers by accelerators and university programs, and the fact that we are maturing. Still, however, this is a disturbing figure.”

Olive Tree’s Amir Lahat talked about the huge digital health opportunity in the U.S. market. “Digital health investments will be worth billions of dollars,” he said, because the United States has the highest rate of deaths from non-communicable diseases (double than Japan, and 50% more than France). It also  has the steepest drop in life expectancy and now ranks lowest among high-income countries—even though is is the biggest healthcare spender: $10,000 per capita vs. the $3,800 average for OECD countries.

He also pointed at the spending mismatch in U.S. healthcare. While the healthcare market influences only 10% of an individual’s health condition, 88% of U.S. healthcare spending is on access to care and only 4% on health behavior, which drives 50% of health condition.

Effects of Tech Giants

Does the increased involvement of multinational tech giants in the Israeli tech scene have a positive or negative impact on the local ecosystem? Samsung’s Adar answered this question by noting that she is familiar with both types of companies, having worked for most of her career in startups and for the past nine years at Samsung.

“There is an excellent exchange between the giants and the startups in Israel, with cross-fertilization of ideas, methodologies, work style, people, and more,” she said. “We see growth in the funding participation of foreign investors, both traditional VCs and corporate venture funds. We see corporate VCs invest in early stages, which is a new phenomenon.

“This shift is a vote of recognition and acknowledgement from the international investment community about the quality and value of Israeli startups. It does not come at the expense of local VCs, as they have a better view of the emerging deal flow. In many cases there is a mix of local and foreign money in each round, but the local VCs’ share of the total investments is declining.”

In conclusion, the participants agreed on a few important points:

  • There is a need for more Israelis from all sectors and geographies to establish companies based on real problems.
  • More investments should be done in pre-seed and seed stages, where investments have dropped over the past few years.
  • Angels should get back into the game and create more liquidity options.
  • Investors should be more open-minded with their investments, recognizing that not every startup needs to become a $1B company to provide healthy ROI.

If you are an Israeli investor or startup, Samsung Catalyst Fund would welcome the opportunity to talk with you about the possibility of working together. Find out how to be invited to one of our networking receptions by signing up for our newsletter.

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