How did you develop the Israel-China model?
It developed based on a few elements. We have a special relationship with China – my brother lived there for ten years. He ran a company in China, where he saw Israeli technology fitting very well. In addition, the Israeli prime minister's family comes from China. They escaped from Russia at the beginning of the nineteenth century to Harbin, and his father later migrated from China to Israel. His background helped us work with the Chinese government. In 2003 we started investing in China because of the needs of portfolio companies. Our companies had a very high interest in China four or five years ago, because of the new markets opening up and because of their own cost issues.
What was the process of setting up the first fund like?
The government of Israel, through the prime minister, helped us in discussions with the Chinese government and enabled us to receive, in 2004, the first license ever for an onshore China fund, a fund that has a GP/LP structure and is registered in China. While there are other funds operating now, we were the first one and that is symbolic to the Chinese government and Chinese businesses. Since then we've done six investments and two M&A exits, and based on that experience we have raised a very large amount of money for the latest fund. Altogether, we are planning to have about $350 million at the final close.
How has the Israel-China model worked in practice?
Our experience with Israeli companies in China has been very good, since Israeli companies focus more on R&D and innovation while Chinese companies are focusing more on adoption of technology – providing access to the market – and manufacturing. So it's very complementary. Israeli companies continue to grow independently, while we bring their techniques and technologies into China. For Israeli companies it is extremely attractive, given the fact that we have Chinese investors sponsoring our funds.
Why has Infinity sought to raise much more capital for its latest fund than originally planned?
In order to implement our strategy we came to the conclusion that it's right to first have a large stake in companies and focus our management attention on a few companies, rather than having 25 to 30 companies in one fund. We need to have a leading or controlling stake. Since we invest in late-stage companies, they have no technology risk and are past the initial marketing phase. So the preferred way to accomplish these objectives is by way of buyouts.
Did the fact that your first fund was denominated in renminbi help you, given China's restrictions on foreign investment funds?
Yes, we benefit from that. Our tax treatment is much better, and we have improved access to deals.