An interview with Mr. Oded Uni, Partner with Gornitzky & Co
With a small size of only 25,000 square kilometers, Israel still leads the global hi-tech industry, especially in the medical field, which has attracted the attention of numerous China’s investors. With the increasing demand for advanced medical technology from the China market, there is a continual rise of cooperation between the two countries. SpaChina interviews Mr. Oded Uni, Partner with Gornitzky & Co, who explains from a professional perspective Israel’s hi-tech industry and the current status of Sino-Israel cooperation.
Mr. Uni has diverse experience and intimate acquaintance with all aspects of the Hi-Tech industry, handling a variety of legal and commercial affairs from startup inception stages to addressing mature company needs and ultimately, representing companies at the “exit” phase, such as M&A and IPO. Mr. Uni specializes in the world surrounding the Hi-tech ecosystem, with an emphasis on the Fintech and Medical Aesthetic industries. Prior to joining the firm, Mr. Uni served as General Counsel of a leading global medical aesthetic company.
Please introduce Gornitzky & Co to us. What is your major work?
Gornitzky & Co. is one of the leading law firms in Israel. Founded in 1938, Gornitzky & Co. has been involved in many of the largest and most complex transactions in the Israeli market and has played a key role in the development of Israel’s economy and legal practice. With strong practices in the fields of Banking and Finance, Capital Markets and Securities, Tax, Energy, Telecom, Hotels and Leisure, Hi-tech and M&A, we are consistently rated by leading international legal ranking guides as one of Israel’s leading law firms. We are well-known for our extensive experience in all areas of commercial law, serving as a legal ‘Premium-one-stop-shop’, for our domestic and international clients’ business activities.
My practice focuses on the hi-tech industry (ranging from cyber security to life science), with a special emphasis on Fintech and Medical Aesthetics fields.
Gornitzky also has extensive experience in the Israel-China cross-border transactions. We represent Chinese entities, including funds investing in Israel, Israeli corporations in transactions with Chinese investors and buyers including in connection with joint ventures operating in the Chinese market. Our forte lies in providing comprehensive service on all legal aspects of such transactions. Actually, just recently we have represented an Israeli company in the field of Digital Health, in a joint venture and investment deal with a Guangzhou-based fund.
Can you tell us about Israel being mentioned as the “Startup Nation”? What are the characteristic industries of Israel?
Israel is a small country with an aggregate population of around 9 million people. Israel is recognized as “Startup Nation” because of its entrepreneurial success and being an innovative high-tech hub in various fields and segments, such as Artificial Intelligence (AI), Digital Health, Agritech, Fintech, Biotechnology, Cybersecurity and Medical Aesthetics. Just in the last decade there has been an increase of 50% in the number of exit deals in Israel and over 800% in the exit value. In the last year there were 5 exits of over $1 billion each.
What are the reasons for the flourishing of Israel’s medical and health industry?
In Israel, there is a mandatory draft of 18 year-old men and women into the Israeli Defense Forces. During their service, the young soldiers are exposed to various innovative technologies and ideas as well as problem solving experiences. When the innovation and ingenuity meets the traditionally excellent medical industry in Israel, cutting edge solutions are created. In addition, the culture of innovation and success sometime drives senior and well-experienced doctors and professors, who already have a proven track-record and reputation, to take chances and independently develop new technologies and ideas, the need for which they have encountered in their practice. We can call it the “practicality of the invention”. While in other places we sometime see a race for the coolest technology, in Israel people are usually focused on solving real problems and this yields the great success of the Israeli Hi-tech industry.
To that we should add the Israeli Government’s encouragement programs for start-ups, which offer grants that are repayable only upon success, thus significantly reducing the risks entrepreneurs take upon themselves and also promoting a flourishing eco-system.
Another explanation is that considering Israel’s small size, Israeli startups are set up from inception with an eye towards the global markets. That dictates awareness to market trends and strategic planning customarily found only in more mature companies.
What medical trends and new medical technology do you see in Israeli markets?
In recent years we have seen a decrease in the traditional medical device industry and a tremendous growth in the digital health industry. This of course does not include the aesthetic medical device market which, at least until the recent Covid-19 crisis, has continued to show very nice growth. In the aesthetic industry, in addition to the traditional opportunities to invest in new technologies at an early stage, the Covid-19 crisis has created interesting opportunities in the capital markets. The combination of AI and machine learning capabilities with medical devices and digital health together with decades of healthcare experience and patients’ information could be translated into predictive and preventive care solutions. No wonder that the Israeli digital health sector attracted $333M in 2017, and $270M in the first half of 2018, reelecting a continuing trend. Globally, the sector is growing and changing from data collection to data-driven insights, a shift that we see in Israel as well.
What is the estimated scale of Chinese investors in the Israeli hi-tech industry? What are their unique requirements and preferences in the medical industry when choosing companies to invest in?
In the last two years, the average quarterly number of Chinese investments in Israeli companies grew from 15 to 20. In general, over the past five years, around 1.5 billion dollars were invested by Chinese investors in 300 Israeli companies.
Investments in Israeli companies could result in a win-win for both parties. Typically, the Israeli startups are happy to gain access to the large Chinese market while the Chinese investors are looking for interesting technologies which have potential in China and could be easily adapted to the Chinese market. Therefore, and especially in the medical industry, we often see an investment transaction combined with certain commercial arrangements, specifically for the Chinese market (such as exclusive distribution rights). This model is beneficial to both parties and addresses their mutual interest.
The combination of an investment and a commercial agreement makes investment by Chinese companies attractive to Israeli ventures. So, though we also see financial investments which are being made through Chinese funds, in light of the aforesaid win-win opportunities, we believe there is still room for strategic investments, directly by the relevant Chinese company. This of course could be implemented subject to local Chinese regulation as to investments in foreign companies.
What are your suggestions to Chinese investors who invest in Israeli companies?
I always tell my clients that everything could rise and fall on relationships. If you find the right partners and advisors, and establish relationships based on good communication, transparency and trust, the sky is the limit. Intellectual property matters are obviously important too, because eventually investors invest in two things: the team and the IP. So a thorough Due Diligence on both the team and the IP is highly recommended. Taking a well-known and reputable law-firm could be very instrumental to the investment process as such law firms are quite often serve like a “knowledge center”, well familiar with the local market, can refer the client to various trusted advisors and above all, speak the hi-tech “language”, thus reducing costs and negotiation time with the target companies’ team.
Investors should also bear in mind that there are Israeli companies that receive grants from the Israeli government and are therefore subject to certain restrictions on their ability to transfer their IP out of Israel and this could impede a future sale of the company. The law provides for ways to relax or lift these restriction. In any event before an investment is made we recommend to check whether the company has received governmental grants.
As to investment regulation, it is quite easy to invest in Israeli companies. As opposed to other countries, generally Israel does not have a policy that restricts Chinese investments. For example, Chinese investors can nominate Chinese directors to the board of directors of Israeli companies and receive dividends as shareholders (subject to certain standard tax laws).
As I noted earlier, the fact that the Israeli market is so small leads Israeli companies to focus on global markets. Therefore, in some industries, Israeli regulation may become less relevant. For example, in the medical aesthetic industry, certain companies will not bother to obtain Israeli FDA because they do not intend to sell in Israel anyway. They will probably work to obtain CE mark, FDA or CFDA permits.
In conclusion, like any other investment, a goal without a plan is just a wish. Investors should plan ahead their steps, consider the added value in making such an investment and conduct the necessary diligence. In Israel it is usually not too complicated, the business environment is welcoming and the costs are quite reasonable in comparison to other global markets.
From your business perspective, what potential and advantages do Israel and China have in the development of cooperation in the near future?
China and Israel have a lot in common and both enjoy a strong entrepreneurial drive and great bilateral relationships. In recent years we have seen the Israeli market maturing and becoming more and more open to adopting Chinese technologies and products. We have also seen in the current Covid-19 crisis, that Ma Yun (Jack Ma) sent to Israel Covid-19 face masks, test kits and protective clothing, so the care and communication between the two people goes beyond just investments and business. We have a lot to benefit from each other and we will see more opportunities as the global awareness for medical technology increases. As to the medical industry, I expect an increase in collaborations and teamwork between Israel and China in developing medical technologies generally, and in particular in the digital health industry in combination with AI. No question that the Covid-19 crisis could bring very interesting opportunities to the Israeli companies and Chinese investors in these segments. There is also a very strong medical aesthetic market in China that is thirsty for innovation and sales of new technologies and products and there are quite a few Israeli companies in this space, as I am sure there are also Chinese investors that will be happy to explore potential cooperation.