Xueling Cao, Director of Shengjing Group and Shengjing Fund of Funds, which will likely invest $50M this year in Israeli hi-tech startups. Photo Credit: Simona Weinglass
The Chinese are eager to do business in Israel, says Xueling Cao, Senior Partner at Shengjing Group, because each have something the other needs
There are periods in history when opportunity is so close, it feels tangible.
Such was America’s Gilded Age from 1870-1900, when the number of U.S. millionaires jumped from 20 to 40,000 as entrepreneurs seized opportunities in railroads, mining, retail and finance.
Such has been China of the last three decades, where the rate of growth averaged over 10 percent per year.
“China is developing so fast,” Xueling Cao, Director of Shengjing Group, breathlessly told Geektime at a beachside table at Tel Aviv’s Royal Beach Hotel.
“But time is limited. Chinese companies and Israeli hi-tech need to find a position in the market as quickly as possible.”
Referring to the popular acronym for Baidu, Alibaba and Tencent, the Chinese equivalents of Google, Amazon and Facebook, she says, “look at BAT.”
“You cannot make another company with the same business model as a BAT, they already seized their position and there’s no opportunity anymore.”
Xueling Cao is not a representative of BAT. On the contrary, her company, Shengjing Group, provides financial and management consulting in China for over 10,000 small and medium businesses.
The elegant 26-year-old, who won a Goldman Sachs scholarship to China’s premier business school, is here in Israel for the tenth time in a year.
Her clients, companies with yearly net profits between $2 million and $10 million (not so small and medium-sized for many countries’ standards), have heard of the “Startup Nation,” and “Innovation Nation,” and they want to get in on the action.
To that end, Cao estimates that Shengjing, a company with 500 employees, will invest $50 million in Israeli hi-tech startups this year.
“There is amazing innovation here,” said Cao, ticking off some of the organizations that most impressed here: “Mobileye, PrimeSense, the Technion,” also known as the Israel Institute of Technology.
“I can smell the opportunity here, and I am excited.”
The calculation is simple, explained Cao. Israeli companies lack money and markets. Chinese companies have money to invest and desperately need to innovate.
“It’s a win-win.”
Why Israel?
From left to right: Fiona Darmon, JVP Partner, Sherrie Wang, Senior Partner at Shengjing Group and Shengjing Fund of Funds, Xueling Cao, Director, Shengjing Group and Shengjing Fund of Funds. Photo Credit: Benny Doutsh
“You’ve got to picture China 20-30 years ago,” Fiona Darmon a Vice President at Jerusalem Venture Partners and one of the recipients of Shengjing’s initial investment in Israel, told Geektime.
“Everything you manufactured got sold. If you made a steel pin it was sold, if you made a plastic cover it was sold. Supply was far lower than demand. “
But for China’s small and medium sized companies, those salad days are over. Labor costs have surged while e-commerce, globalization and free trade have intensified competition.
Shengjing’s clients range from gas and oil companies to clothing and shoe manufacturers to agricultural firms.
“Very traditional businesses,” explained Cao. Her company was founded eight years ago to educate these companies so they could enter the 21st century.
“We wanted to teach them the international way of thinking and innovation,” said Cao.
This involved the kinds of things an MBA student would learn: how to grow revenue, how to cut costs, how to scale up your business, and how to innovate.
But most of Shengjing’s CEOs didn’t have time to take a sabbatical to get an MBA. Nor did most of them speak English or have the ability to pass the GMAT. So Shengjing brought the learning to them, training and teaching CEOs through courses, workshops and one-on-one consulting.
After companies complete the basic course, they can specialize. One of these areas of specialization is innovation, and that’s where Israel comes in.
In order to teach innovation, Shengjing decided a few years ago to take CEOs on a field trip to Israel. Two to four times per year, Cao brings delegations of Chinese entrepreneurs of small to medium sized startups to visit companies like Biosense Webster, Given Imaging, Iscar as well as the Technion.
At this point, Shengjing has over 30,000 alumni of their education programs.
“They realized that they could also create investment vehicles around this network,” Darmon told Geektime.
“They’ve developed a fund of funds platform that really leverages off the power of their network.”
Fund of funds
“We don’t have a specific industry so we can’t do direct investments for right now. We do fund of funds business,” Cao described to Geektime.
“So far, we’ve invested in three Israeli funds: JVP, China-Israel Value Capital and Vintage Venture Partners. Chinese SMEs invest in our fund and then those funds use our money to invest in a local portfolio.”
Another way that Shengjing finds companies to invest in is through global startup competitions.
The company is currently offering a $1.5 million prize to the best global startup, in addition to $15 million in equity distributed among the top 20 finalists. The final competition will be held in Beijing this August.
Cao estimates the total amount the company and its partners will invest in global startups this year is $150 million, with $50 million of that going to Israeli companies.
More than just investments
But Shengjing is not merely interested in investing. They hope that some of their Chinese clients will sign direct deals with Israeli hi-tech companies and integrate that technology into their core business.
“We just signed a transaction between a Chinese company and an [unnamed] company in the Israeli energy storage industry. It was a $2 million direct investment in the company.”
Cao said that there are “almost three” similar deals in the works between her clients and Israeli companies, but refused to elaborate.
“It’s not just investment we’re interested in,” Cao replied, “it’s a whole business model.”
“Only BAT can do transactions by themselves. They have their own financial consultants. SMEs need Shengjing to help them find the right match in Israel.”
China hearts Israel
Shengjing’s arrival is part of a surging trend of Chinese investment in Israel in the past two years. As reported in theWall Street Journal, Israel’s National Economic Council says tech deals between Chinese and Israeli companies will amount to $300 million in 2014, up from $50 million the year before.
Though Shengjing does not only focus on Israel, and is exploring opportunities in the United States and Latin America as well, Cao says the company has a particular focus on the Startup Nation.
“Americans already have a large consumer market, and the valuations are much higher in Silicon Valley. An American company will ask, ‘Why do we need to go to China?’”
Cao also stated that Israeli hi-tech has a famous reputation in China.
“We hear many success stories.”
If there’s one message she wants to transmit to Israelis, it’s that she hopes they will become willing to do business with China and not just the United States.
“The Chinese are very willing to do business here. China is a huge country. Israel is not. We believe if we can combine forces, crazy things will happen.”
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