Israel and the UK – Kindred Tech Spirits
At the forefront of digital excellence
As Europe’s technology and innovation hub, London remains a magnet to the world’s leading start-ups and technology companies. This was clearly reflected in the 2017 Tech Nation Report, which places the UK at the forefront of Europe regarding tech investment, digital skills and digital collaboration.
During 2016, £6.8bn worth of tech investment flowed into the UK – 50 per cent more than any other country in Europe – while London has attracted more tech investment over the past five years than Paris, Berlin and Amsterdam combined. The sector now has a combined revenue of £170bn – a 22 percent (£30bn) growth over five years – with the acceleration in numbers of digital businesses far outstripping the number of new non-digital ventures.
Bank Leumi UK’s Head of Hi-tech Finance, Shalhevet Mandler, sees strong parallels between the UK’s burgeoning technology ecosystem and the success of Israel’s technology sector, with both markets enjoying good access to funds, skills and enterprise.
“The UK and Israeli tech sectors have strong private equity buy-in,” explains Mandler. “Both markets have great access to individuals with digital skills, as well as a strong entrepreneurial spirit. Neither market is showing any real sign of slowing down.
“Because of this, London remains a natural ‘go-to’ destination for Israeli tech entrepreneurs seeking to expand internationally,” she adds.
Helping Israeli businesses establish a UK presence through LeumiTech
As an established UK bank with strong links to Israel, Bank Leumi UK is perfectly positioned to build upon this interest from Israel and help new entrants to the UK market.
The bond between the finance and high-tech worlds is not an obvious one. Tech start-ups face many challenges when trying to access financial services; they are most often serviced by local or domestic banks, which find it difficult to deal with companies that are small yet global. However, banks also face challenges when required to determine why they should fund/lend to a company that burns more than it makes. With this in mind, the bank established LeumiTech to provide tailor-made structured business for early-stage technology sector players, from start-up to scale-up.
Since 2014, Bank Leumi UK’s LeumiTech operation has been helping Israeli-based clients expand into Europe, via the UK. Because Bank Leumi UK is an established British bank owned by a major Israeli financial services organisation, its London team can leverage its market position through LeumiTech’s technology expertise. In return, LeumiTech’s strong position in the Israeli finance and technology sector is a proven advantage for any client that has a business connection to Israel, not just Israeli-registered businesses.
Access to a global market
“Our business model is simple and compelling,” says LeumiTech CEO, Yifat Oron. “LeumiTech in Israel works in close partnership with LeumiTech operations based in our wholly-owned subsidiaries in London and the United States. This means that we are able to directly connect Israel’s booming tech start-up economy to London, the tech capital of Europe, and Silicon Valley, the tech capital of the world. Today LeumiTech has 4,000 Israeli or Israeli-related clients.
“LeumiTech focuses the banking group’s capabilities pertaining to high-tech companies and offers a comprehensive service including credit financing. Leumi Group has adjusted its credit policies to enable the bank to provide companies credit at different lifecycle stages and with new business models.”
Through a unique product portfolio, LeumiTech delivers a hands-on approach when working with tech companies, providing tailored solutions that can benefit businesses at various life-stages, from infancy through to maturity.
It also formulated an interconnected ecosystem, acting as a partner to help start-ups accelerate expansion. One of the steps taken to support the community was to sign a contract with the European Investment Fund (EIF) where Bank Leumi leverages a special EIF programme, which allows better financing terms.
“Another significant milestone was Bank Leumi's strategic cooperation agreement with China's largest insurance group, Ping An, to promote the entry and integration of Israeli high-tech companies into the Chinese market. As part of the agreement, LeumiTech will constitute a bridge between Leumi Group customers and the Ping An Group, which will assist these companies in penetrating the Chinese market,” adds Oron.
Trends overview – The Israeli Scene
Today, the Israeli high-tech industry is in great health. It has grown tremendously in the past few years; not just through the large established corporates, but also because of a much more 'long-run' process that is seeing the market maturing. This is due in part to venture capital funds that are in a period of prosperity, and are leading an increasing level of investment.
Lots of new growth capital is now also available from newly-founded Israeli-based growth funds. They are also raising substantially more money – as are the start-ups. Companies are not interested in being sold 'too soon', and the increasing amount of fundraising allows these companies to grow and develop in order to be sold at a 'riper' stage and for a higher price. This is not a trend unique to Israel, but a part of a global trend of decreasing stock issues of global and US high-tech companies.
At the same time, another trend that we expect to continue is the growing pace of opening new high-tech companies.In 2016, the total number of new companies established in the field in Israel reached an unprecedented volume of more than 1,100, compared with the previous years when 500-600 start-ups were established annually.
“Another welcome trend we have witnessed in recent years is the increasing entry of global Tier 1 players into Israel and the opening of research and development centres in our local Silicon Valley,” adds Oron. “These are huge technology players, like Apple and more recently Snap Chat, as well as giant non-technology international companies who are opening development and innovation centres in Israel.
“Among the hottest sectors today are business intelligence and analytics, deep learning, the cyber sector – in which Israel is already a top-tier player and world leader – the automotive sector that has been rising during the past three years, insurtech, and of course, fintech. Fintech has been the fastest growing sector globally since 2009 with a presence in Israel since the start, as the country anticipated its growing need and investment.”
An important financing tool that contributes to the continuous growth is the range of more accessible credit options. The entry of more banks and financial institutions to the high-tech section increases the credit scopes and the entire investment share of the industry.
The past year has also been a record one for mergers and acquisitions in Israel, with over 100 deals totalling $1bn. 2017 is expected to yield a much higher amount, with deals such as Intel-Mobileye, NeuroDerm-Mitsubishi and Kite Pharma-Gilead. These three deals alone amount to over $25bn.
We still have more than a quarter of the year to go, but one can already see that the Intel-Mobileye deal is likely to be one of the most influential financial events in Israel’s history. Looking at long-term effects, this deal is a turning point, if not a strategic landmark, for the local industry. It has brought Israeli automotive sector to the A-league, but also created interest in the smart technology from communication and cellular giants.
Bank Leumi (UK) plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.