Chinese fund MizMaa to invest $100m in Israeli startups

Catherine Leung Photo: Eyal Yizhar

The fund, which has already invested in six startups, will invest in cyber security, auto technology, fintech, AI, cloud computing, and robotics.

A new venture capital fund originating in China will invest $100 million in Israel, sources inform "Globes." The new fund is called MizMaa Ventures - a combination of the Hebrew words for east and west. The fund began operating a year ago, and has operated under the radar up until now. All of the money it raised is designated for investment in local startups.

MizMaa has obtained funding from three wealthy Chinese families, with most of the money coming from the Chen family, believed to be the 58th wealthiest family in the world. In the next stage, MizMaa will try to raise $150 million for another fund.

MizMaa's Israeli portfolio includes cyber security companies Armeron and Coronet, as well as Twiggle - a search engine for shopping websites. Another company in which MizMaa has invested is Corephotonics, which deals in optics. The fund is expected to announce two more announcements soon, one of them in fintech.

Leading MizMaa's activity is Chinese investment banker and former JPMorgan Asia Investment Banking VP Catherine Leung, together with former Bank of America executive Isaac Applbaum, who lives in San Francisco, and also chairs the Western Wall Heritage Foundation.

"Globes": Why have three Chinese families chosen to establish a venture capital fund focusing solely on Israel?

Leung: "The world is becoming more and more technological every day. Technology spread very quickly. China has a history of great leaps, as can be seen in telephony and payments, for example. The Chinese want to get ahead, and given the size of its population, China has a big need for technology.

"Israel is very good in this - great, actually. You can see that this isn't just Chinese concerns. Companies from all over the world are acquiring Israeli companies, and then establishing development centers here on the basis of these acquisitions. Israel holds the record in per capita startups, and is therefore perfect for someone looking for investments in technology.

"I have to say, after just over a year here, the Israelis are very diligent, very practical, and very smart. You can see that if you work very hard, you will see that your partners are working just as hard as you are, and maybe even harder."

Why did you choose the name MizMaa?

We love the name and the combination of east and west. I think that this is especially appropriate for a country like Israel, which is very good in certain things, but the local market here is small. Israeli companies have to appeal to the West, and you know how to do that very well, but it is important that you also appeal to the East, where there are huge markets and large populations.

"I think that because of the language, and because of the substantial cultural differences, it isn't easy for Israeli companies to operate in the East. It's something that we would like to give real help in. I understand the culture, I was born in China, and I understand the language. I studied later in both Hong Kong and the US, so I also know this part."

How well do you know Israel?

"I can't say that I'm an expert in Israeli culture, but Isaac and I come here once a month for four days, and he has been very active here for more than 10 years already."

Investment in 15-18 companies

What companies are you looking for?

"In principle, we have decided to operate in five spheres in which we believe that Israel has a relative advantage. One is cyber security, and I don't think I have to explain why this sphere is interesting. The second is auto technology, with an emphasis on cars with an Internet hookup and autonomous vehicles. Another area that interests us, considering our background, is fintech. The other spheres are artificial intelligence (AI) and cloud computing."

Applbaum: "We are also showing some interest in robotics. If people hear that Israel is active in a given area, robotics or AI, they say to themselves that if Israel is thinking about this, they have to think about it, too."

Are you looking for companies that are already known in China or the Far East?

Leung: "We have no rules about this. In our future portfolio, which will have 16-18 companies, there will be some that will start sales in the US, and will think about China only at a more advanced stage. There will be some that are already selling in China, and there will be some that aren't selling yet, and would like to begin in China. It's a combination."

You are working for three families. How different is that from working for concerns like JP Morgan?

"It's very different. You have more room for creativity. In concerns like JP Morgan, you are bound by a set of rules. They have a way to do things, and it's something that is not expected to change overnight, certainly not easily. We're now building our own ecosystem and encountering quite a few questions - for example, how to find companies, how to help companies that you have already selected, and how to connect them to the right customers. No one has done this before and can tell you how to do it. Our job is to find out how to do it. There's a saying in Chinese - 'Touch stones when you cross the water.' I don't know of any English equivalent. It's frightening sometimes, but it's exciting."

Will MizMaa recruit more investors later on?

"There are more families interested in us, and there's no doubt that this is only the beginning. I hope we have more successes than mistakes, and that the fund will get bigger as time goes on. We have challenges, and to some extent, we are breaking new ground. I hope it pays off. There's a lot of money coming from the East looking for investments here. We realize that technology will change the world, but we don't necessarily know the right way to invest. Should an investment be made by remote control? Should a fund be founded here? Should we look for investments in Silicon Valley? Should we appoint people here, or come ourselves once a quarter? There's no answer to this yet."

Have you met with local venture capital funds?

"We regard ourselves as a friendly concern, not as competing with a lot of concerns. We are certainly making joint investments with other concerns. We're very flexible. We can lead a financing round in a given companies, or join another concern."

You have made six investments totaling $20 million so far. Can we conclude from this that you will invest mainly in A rounds?

"We'll invest a few million dollars in each company. I think that this is the right way. We want to receive 10% of each company, and the A round is what we feel the most comfortable with. The seed round is too early for us. We can also invest in B rounds, but I think that the way to make money is to invest in the relatively early stages, which are naturally riskier. That's part of the game."

"It's great doing business here"

China recently announced that it is stepping up control of the exchange rate, which arouses concern that the flow of Chinese investments to Israel and the rest of the world is liable to be cut off. How does this affect you?

"It's true that the Chinese government is controlling the exchange rate, but this doesn't affect us at all, because our money is off-shore. This restriction can actually be an opportunity for us."

What is your relative advantage in comparison with the dozens of funds that are already investing here now?

"We are practical and dynamic. The list of our advantages includes our background, the connections we have created, and the investors in the fund. There are significant advantages that we are bringing to the table. Our companies sometimes get various business proposals in the Far East, and then they ask us, 'Is this something serious? Is it worthwhile for us to waste time on a meeting? I can find out who it is within half an hour. This is also relevant in a case in which they want to reach a specific type of customer. Our background can also be relevant for an exit: who might want to buy the company, what companies from the East will be relevant as buyers, and so forth."

You have done business almost everywhere in the world. How do you see Israel in this context? Is it comfortable investing here?

Applbaum: "Once you overcome the difficulties, it's wonderful doing business here. People in Israel are very sociable and honest, and all of them are focused on the final goal. They work very hard. One of our biggest challenges is conducting video conference calls. There are only two hours in the day when it's possible, because I live in California, Catherine lives in China, and our companies are in Israel. Nevertheless, you don't hear Israelis says, 'I can't do that.' They have discipline."

2016 was a peak year in Israeli high tech. Aren't you afraid that the amounts of money flowing here are inflating the prices of companies?

Leung: "I think that there is an increase in the value of companies if you compare what is happening today with the state of the market several years ago. There's no doubt that there's a lot of money looking for investments, and that there's probably more money than there are good companies. Even if things are overpriced, I think that the gap is the narrowest in Israel, compared with other places, such as Silicon Valley or China."

Applbaum: "I agree completely. We've seen hundreds of companies, and have invested in only six so far. We see good companies at a reasonable price, and get the share that we want. We're not chasing after deals. The situation is competitive, but I don't think we're paying an exaggerated price."

Leung: "We won't pay too much for a company if we don't think it's worth it, just to fill a quota. We're very disciplined in this matter."

Published by Globes [online], Israel Business News - www.globes-online.com - on June 13, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

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Catherine Leung Photo: Eyal Yizhar
Catherine Leung Photo: Eyal Yizhar
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