Before we get started I just wanted to send a shout out to my in-laws, on the occasion of their wedding anniversary. Don’t say we never get you anything!
Israel is second to none when it comes to innovative technology for the water industry. From drip irrigation, to the water quality testing solution that was used in Beijing to keep the water events safe, Israel has been at the forefront of developing these technologies. It makes it all that more frustrating and shocking that domestically, Israel has been fast approaching a water crisis. With the country’s main water source at dangerously low levels and few calls for water conservation, a crisis seemed to be on the horizon.
Well finally a solution maybe brewing. Bids have been made to build and operate Israel’s 4th desalination plant. Funny that the country that developed the technology, has for the most part exported it to other countries to solve their water problems, but has been slow on the uptake to tackle the domestic issue. (But there is no use crying over spilled milk) According to Globes: “…that at least four or five consortia will likely submit bids today in the presorting tender to build and operate Israel’s fourth desalination facility at Soreq. The 100-million cubic meter a year plant will cost NIS 1.5-2 billion($500 million). The facility is due to come on line in 2012.”
Let’s just assume that it won’t be completed on time, and that it will come on line in 2013-2014. Still, it will go a long way in solving the domestic Israeli water crisis. Israel faces many challenges to its’ water supply from neighbors. Jordan, Syria and Lebanon, all have the ability to tinker ( to put it mildly) with the Jewish state’s water supply. Another water desalination plant will help Israel become more ‘water independent’ and self sufficient, which will also be crucial in limiting geopolitical risk.
It also wouldn’t hurt if some prayers would be directed to above to provide the country with some much needed rain.
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Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
Avishai Silvershatz , Infinity: Infinity is an equity fund, not a traditional VC, focused on China. We manage over $600M. Our key focus is on a new $300M-plus fund, named the I-China Fund focused on late-stage equity investments. This fund’s main strategy will be to invest in late stage Israeli tech companies and on the other side, partner with Chinese companies that can employ Israeli technologies locally in China.
Who are Infinity’s Chinese partners?
AS: We have a list of very strong partners from both the government and private sectors in China. We’ve received a large commitment from the Chinese government for the fund. Political support of the fund comes from senior levels in both the Israeli government and Chinese government leading up to the Chinese Premier.
I assume that Israeli companies are traditionally nervous about sharing trade secrets. Is this the case?
AS: A key issue to establishing Chinese-Israeli partnerships requires overcoming this fear of Chinese firms co-opting Israeli tech. We successfully mitigate this problem by building multi-layered partnerships with key incentives beginning at the shareholder level all the way up to management level.
What’s Infinity’s advantage as an investor in Israeli firms?
AS: Infinity Equity had the first foreign fund to be incorportated in a GP/LP format in China. Doing business in China since 2004 has helped build a layer of trust for our network. We have strong support from the Chinese government. China is committed to Infinity because “innovation” is one of key things of the Chinese Government’s 5 year plan. The government has committed to moving from a low cost supply of labor to more value-added services as an economy. Innovation is mandated as part of this plan. The government views Israel and this fund as part of this movement to innovate.
What kind of criteria do you use when sizing up an investment?
AS: Typically, we invest in Israeli companies that have proven themselves in gaining marketshare through leading technologies and product development. Similarly, we invest in Chinese companies with strong market presence. We give Chinese companies, in some cases, equity in the Israeli company to incentivize the partnership and align working terms. There has to be mutual interest for these partnerships to work. We’ve had time to home our model over the past few years.
Can you give us an example of a recent investment?
AS: We invested in an Israeli company, Shellcase, which created a technology for packaging of chips used in cameras in cellular handsets. They had a.fab in Jerusalem with good tech and big losses. Many earlier shareholders gave up. We split the company in 2 parts. R&D stayed in Jerusalem and manufacturing shifted to China. The Israeli part of the company was sold to Tessera (TSRA) and the Chinese company is doing well and is very profitable and will probably float next year. Doing the manufacturing in the Far East has enabled them to do very well. By the way, the strong support from the Chinese government in the form of 0% interest loans made this successful investment and venture successful.
Which sectors are you looking at in Israel to make investments?
AS: In particular, we like the IT sector and see a lot of technology strength in Israel and demand for such technology in China. We also think Israel is quite strong in Medical Devices and related technologies. We’re seeing more activity and potential in Internet related technologies, spanning both consumer and B2B. Lastly, Mobile technologies coming out of Israel are very hot and in absolute numbers, China is the fastest growing market in the world.
Given your model, do you begin by targeting an Israeli firm and then look for a Chinese partner or vice-versa?
AS: More often than not, we start with a Chinese partner with a specific need for technology and we go shopping for the best in Israel. But, it really works in both directions. We get a lot of Israeli companies frequently approaching us looking for Chinese partnerships.
So, Israeli firms see Infinity as a distribution partner who takes equity in return for services?
AS: Infinity provides value in two ways. Most companies know that China should be their next play. These companies also realize that they can’t go to China alone. Many have frequently tried and failed to penetrate into China. They need a partner who can talk to Israelis and knows how to do business in China. We also focus on late stage entities and because this part of the market is not very populated, we can put up a lot of money when public markets are not very receptive to tech companies.
Are you seeing any fallout in portfolio companies that have their cash invested in subprime assets?
AS: Some companies lost money. This is not a huge deal. Other trends like the slowdown of the American market, weakening of the dollar has hit foreign companies twice, at both the operations and expenses level. We also see companies hit by the public market window closing and debt players less willing to put money into late stage technology companies.
Which sectors do you see in the near future as capturing larger share for Infinity?
AS: We are seeing more companies with little technology risk (it’s behind them) and less market risk (they’re selling well). As successful entrepreneurs start their second and third firms, we expect to see more of this as well.
Thanks.
Aaron Katsman
IsraelNewsletter.com
I posted yesterday about how a strengthening US Dollar could potentially benefit Israeli stocks that trade in the US. I was asked by some readers how come I think that the USD is poised for a rally? The answer…FIFO. FIFO is an accounting term that stands for ‘first in first out.’ With the global economy on the skids, the US was the first country to start having problems and with a vigilant Fed at the wheel, I think the US will return to normal growth in the next 6 months. After all, no recession occurred. The US has had no negative GDP growth quarters, and actually had a surprisingly good 0.9% GDP for Q1. Europe on the other hand, is just starting to show signs of a slowdown. I have heard analysts predicting a potential contraction of over 2% in European growth. That certainly will be bullish for the greenback.
I really think investors need to keep an eye on what’s happening in South East Asia. Asian stock markets like Vietnam rocked and rolled during 2006-07, unfortunately, steep market drops and a worsening economic situation may be a precursor to another Asian financial crisis like we had 11 years ago. Keep in mind that the Vietnam market has lost more than 55% during ‘08, and with inflation jumping, the currency has dropped. This isn’t just an issue in Vietnam. Countries like India, China, Philipines and Hong Kong are all in the midst of spiking inflation, and in the case of the Philipines and Thailand for example, sinking currencies. (Continue »)
What do you get when a leading revenue management firm teams up with leading telecom billing solutions
provider?
A pretty neat fraud detection and prevention solution with an expert delivery team.
Reporting in Globes this morning, ECtel (ECTX) announced a collaboration with Amdocs (DOX) in which ECtel will team up with Amdoc’s system integration services to market its FraudView product suite. The software allows advanced detection of fraudulent activity as part of customer acquisition, credit risk management, and new subscriber evaluation processes. (Continue »)
