This week, the Chinese conglomerate Kuang-Chi has announced it is investing $20M in eyeSight, an Israeli machine vision and gesture recognition company. This is just another example of one out of many recent China-Israel tech collaborations. In 2015, Chinese investors poured more than $500M in local Israeli VC funds, alongside direct investments into Israeli startups.
China’s interest in Israeli technologies is fueled by the country’s shift from traditional industries to the creation of a prominent and leading high-tech sector. Although investments in China fell 29% over Q3 to Q4 2015, from $10.3B to $7.3B, the government is supporting the Chinese startup ecosystem by backing local VC funds. These VCs raised an estimated $231B in 2015 alone. By doing so, the Chinese government is hoping to achieve sustainable economic growth and reduce its dependency on traditional exports.
With these investments in mind, it is sufficient to say that China’s growing high-tech sector offers numerous opportunities for foreign VCs and startups alike, and this rings true for the Israeli high-tech ecosystem as well. While Chinese VCs are getting increasingly interested in investing in the Israeli innovative market, the China-Israel connection can also be strengthened by Israeli startups penetrating the local Chinese market. The Chinese focus on building a tech oriented economy is a golden opportunity for Israeli entrepreneurs- this is of course, if you are operating in the right fields. Prior to founding a startup with a focus on China, Israeli entrepreneurs must consider the following:
Target areas that are recognized, supported and promoted by the Chinese government.
This is highly important, as the government plays a significant role in the local high-tech ecosystem. Foreign companies who engage in promoted industries can enjoy tariff exemptions, tax incentives, and more. However, if a company chooses to operate within restricted industries, it will likely have to get prior approval from the government in order to operate, and in some cases, face a limit on the amount of shares held by foreign citizens. This information can be found in the official government guidelines that address specific economic areas. Examples of such can be found in the 13th Five-Year Plan and the Foreign Direct Investment Industries Guidance Catalogue.
Understand the compatibility between the local market’s needs and your area of expertise.
Israeli startups are usually low in capital (although rich with talent!), thus they can’t afford to waste too much time in adapting their product to the local market. Entrepreneurs need to be experts in the area they want to operate in, while learning the unique characteristics of the Chinese market. Israeli entrepreneurs are fortunate to operate in fields that are highly sought out in China. These include mobile and web technologies, especially e-commerce, mobile apps, gaming, and social media, and the rapidly expanding IoT sector. Cleantech, agro-tech, ed-tech, and digital health are other great examples of booming sectors in the local Chinese entrepreneurship ecosystem that can go hand in hand with Israeli high-tech expertise.
As the Chinese entrepreneurship scene grows at a record pace, the list of sectors that are compatible to the strengths of Israeli entrepreneurs is increasing constantly. As a small economy, Israeli startups need to operate outside the local ecosystem if they are to succeed. China is a large and diverse economy that offers Israelis the chance to step up and join its vibrant ecosystem as it unfolds.