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.

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Someone called us recently to ask about a newish ETF called the SPDR Emerging Middle East & Africa (Amex: GAF). The ETF is heavily weighted around three countries — South Africa (65%), Israel (17%) and Egypt (6%).

There are other ETFs that include exposure to Israel but as far as we know, this ETF currently has the largest exposure.

Israel as a destination

We like Israel (but hey, we’re biased). While Israel is not putting up double-digit GDP growth like China, we are seeing close to 4-5%.

Not too shabby.

Foreign capital is flowing

We’re continuing to see money coming into Israel looking for a home. Canaan Partners just announced another fund that will be targeting opportunities in Israel.

Can Israel do better?

And if you ask Netanyahu [subscription required], we could see close to 8%, if certain pro-market policies are put into place. Even Netanyahu’s detractors credit his cuts in welfare benefits, the removal of remaining currency and capital controls, and liberalization of the banking sector as cutting the way for an amazing economic recovery.

Check out Eze Vidra’s post, “Israel 2008: What the Bulls and the Bears are saying“, for some good forecasts of what various analysts are looking for from the Israeli economy in 2008.

What does the ETF hold?

Check out the GAF’s holdings. What you’ll see is that Israel’s 11% weighting is driven by the fact that Teva Pharmaceuticals (Nasdaq: TEVA) is the ETF’s largest holding at over a whopping 9%. We then see Israel Chemical (2%), Bank Leumi (1.43%) and Bank Hapoalim (1.41%). Elbit Systems (Nasdaq: ESLT) is also in there (1.06%). The rest of the Israel holdings each account for less than 1% of the SPDR Emerging Middle East & Africa Fund.

Investors in Israel from abroad may like the fact that this fund holds locally traded companies that aren’t dually listed or carry a corresponding ADR in the US.

So, what’s an investor interested in Israel to do?

That said, 17% of a fund that has exposure to really different economies may not be enough for foreign investors looking to trade locally-traded Israeli shares. Also, TEVA’s weighting at 9% of the overall fund means that Teva alone accounts for over 50% of the total Israeli exposure.

Teva may be a great company but it’s not indicative of the Israeli market as a whole. I’d like to see more exposure to Israel Chemicals, the Israeli banks, Bezeq, 012.Smile (Nasdaq: SMLC), the Mobile phone carries including Partner (Nasdaq: PTNR) and Cellcom (NYSE: CEL), let alone all the newer, smaller, tech firms listed locally.

What about mobile fixed telecom players like Alvarion (Nasdaq: ALVR) and Ceragon (Nasdaq: CRNT)? Both have taken a worse beating than Britney has received from the paparazzi.

I’d like to see a country ETF also include local retailers like Blue Square-Israel (NYSE: BSI)

Israel investors may be better off weighting for new offerings in the works as we hear that Barclays and another firm has an Israel ETF in registration.

Please see our Disclaimer HERE.

NEW! Introducing Israel Opportunity Investor, our monthly subscription-only newsletter. Stay ahead of the game and make smart decisions in Israel stocks. Go here to learn more.

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Aaron Katsman
www.IsraelNewsletter.com

With today’s bloodbath in Asia and in Europe, investors want to know what should they do? Should they panic and sell everything and move into cash, or should they hold on and keep absorbing large market losses?

Obviously if I actually could predict the future, I wouldn’t be blogging. Rather, I’d be sipping some kind of drink with an umbrella in it. But while none of us can see into the future, examining data from the past may help us shed some light on the current market situation.

An interesting article in this weekend’s Seattle Times spoke about previous market reactions to recessions. Whether we are in one or not is subject for another post.  Recessions on average last 216 days, or just over seven months, and stocks post an average 8.64 percent decline during the first half of the pullback, according to Citigroup(C) data dating back to 1953. That actually doesn’t sound too bad compared to the 16% we are down from high in October. Anyway, we are about half way through this cycle.

So what’s the good news? While the first half of a recession can punish stocks, the second half tends to reward investors. During the nine recessions dating back to 1953, S&P 500 stocks have gained 13.17 percent on average in the latter half of a recession, according to Citigroup.

Let’s hope history repeats itself again this year.

Disclosure: Author’s fund has no position in any stock mentioned as of 1/21/08.

Please see our Disclaimer HERE.

NEW! Introducing Israel Opportunity Investor, our monthly subscription-only newsletter. Stay ahead of the game and make smart decisions in Israel stocks. Go here to learn more.

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.

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We recently got a chance to sit down with Jon Medved, a rock-star in the Israeli tech world, to discuss his new startup. This interview appeared as part of our new subscription newsletter, Israel Opportunity Investor. You can find out more about the product and the opportunities we cover at www.israelnewsletter.com

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Jon, can you tell us what Vringo’s all about?
Jon Medved: It’s not just a company story; it’s a story about trends. The trend is personalization 2.0. The big bonanza which most investors missed, myself included, was ringtones. If you were pitching VCs a ringtone company in 1999,you wouldn’t have even been able to get a meeting. You would have been shooed out. The ringtone business has been a goldmine for those investors who got it. Now, it’s a $6 billion business worldwide. It’s becoming a major source of revenue for the music labels. Take Universal Music Group, for example. Music star, Akon, recently sold a batch of 11 million ringtones. And unlike iTunes, which sells songs for $.99, these ringtones go for $2.

It’s the drive for human expression to want to stand out in a crowd, to personalize things, to make them mine. Just like Jibbetz does for Crocs shoes, allowing you essentially to pimp your shoes, like wearing a T-shirt with a slogan on it, or slapping a bumper sticker on your car — Vringo is doing the same thing for the phone. (Continue »)

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