SoftBank joins battle to attract Israeli unicorns

Yossi Cohen  credit: Reuters

SoftBank has recruited former Mossad chief Yossi Cohen as the world's biggest funds court Israeli growth companies. "Globes" surveys the field.

Last week, "Globes reported in an exclusive story that former Mossad chief Yossi Cohen had been appointed to manage SoftBank's investments in Israel. SoftBank has already been very active in Israel and over the past year alone SoftBank, led by its senior team in London, has made major investments in Israeli growth companies including Trax, anyVision, and Redis Labs.

But the fact that SoftBank chose Cohen, a big name who will open many doors in Israel, marks an escalation in the battle for investments in Israeli unicorns. Only three months ago Blackstone launched official operations in Israel alongside Tiger Global, Insight Partners, KKR and SoftBank.

According to an investigation by "Globes" and research by IVC, there are 90 tech companies in Israel with a valuation of more than $200 million who raised capital between 2018 and June 2021. Insight partners invested in 21 of them, SoftBank and Tiger Global each invested in five of them, and together with KKR and Blackstone, they are all seeking new investments. This is not such a big market for the giant funds but there is extensive potential for helping to transform Israeli growth companies and unicorns with candidates including Rapyd, WhiteSource, Lightrix, Forter, JoyTunes, Melio and aqua Security.

The competition in courting these growth companies will only become more intense. Their entrepreneurs have more and more options led mainly by the huge funds and it makes it easier for them if these giant funds have an accessible Israeli partner based in Israel. And as the competition grows, so the valuation of startups grows accordingly.

The giant funds can be divided into three categories: private equity funds, and their growth fund branches; hedge funds that diversify their investment portfolio in order to increase returns for investors; and venture capital funds that have become growth funds.

Not only technology

In the first category is KKR, which has $250 billion under management with about 10% invested in tech companies but no representative in Israel. The largest fun in this category is Blackstone, which in April appointed Yifat Oron from Leumi Tech to manage its Israel operations.

Blackstone is suitable for entrepreneurs seeking an active director on the board although not somebody to become chair. Blackstone is looking for companies with at least $50 million annual revenue and a valuation between $500 million and $5 billion, for an investment of $100 to $300 million.

Oron said, "Of course Blackstone is not the only fund looking at Israel and that's fine. There are many serious bodies investing here in the growth stage and ultimately each one brings with it a different flavor. There are portfolio players investing in many companies with a relatively small level of involvement and there are investment bodies, very involved in growth companies and making their resources available for the benefit of the company and assisting them through teams of experts and connections with the portfolio companies, like Blackstone, for example."

"With us the number of partners in relation to the number of portfolio companies is one of the biggest in the industry, and our ability to connect up companies up with a portfolio that is not only technology - real estate companies, hotels and logistics - makes us unique in this field."

Tiger investing from afar

Tiger Global is perhaps the most outstanding fund in the second category - hedge funds that are expanding their portfolio. In contrast to Blackstone and to SoftBank, it almost never gets involved in management and takes no seats on the board. This can be an advantage for entrepreneurs who are not interested in active investors or a disadvantage for those seeking involvement, experience, expertise and connections.

Tiger Global was founded in 2001 by Chase Coleman as a hedge fund with $65 million, specializing in technology, and very quickly it became an investor in privately-held startups. Worldwide it has invested, among others, in Stripe, Grab, BiTdance (Tik Tok's parent company) and Instacart.

Tiger has no offices in Israel and the investors' decisions are made in New York with John Curtius, the major figure examining the investments for the fund. Even without a presence in Israel Tiger has invested in a longlist of Israeli unicorns including HoneyBook, Yotpo, Rapyd, and SentineLone, which held its IPO last month.

Insight - the biggest foreign investor

In the third category of venture capital funds that have become growth funds are the likes of Insight Partners and Israeli funds Viola and Pitango as well as SoftBank, which is writing smaller checks than in the past.

Insight is a veteran player in terms of investing in Israel startups, going back to 2000. It is the foreign fund that has invested the most money in Israeli startups. According to IVC in 2020 it was the most active venture capital fund in Israel, making 13 investments. Over the years Insight had no presence in Israel but in 2019, it opened an office in Tel Aviv led by vice president Daniel Aronovitz.

Insight has declared in the past that it makes investments of between $10 million and $350 million with its main focus of B2B software companies. Insight has recorded a range of investment successes in Israel including monday.com, WalkMe and SentinelOne, which all held Wall Street IPOs last month, and in which it was the largest shareholder in all of them. Insight was also one of the biggest investors in Wix.

Cohen: "SoftBank is a kind of global problem solver"

In the past SoftBank invested billions in companies. Today it has significantly expanded the type of company in which it can invest to earlier stages in the company's growth. SoftBank is today prepared to write out checks of just $50 million for companies worth $250 million or more. In this area SoftBank competes not only with Blackstone but also Viola, Qumra, and Moshe Lichtman and Haim Shani's IG Group.

Entrepreneurs who chose SoftBank as an investor will not perhaps benefit from an experienced investor on the board but probably Cohen can assist in sales to government authorities and international corporations, or work with regulatory authorities. Despite the large team of investors at Cohen's disposal in London, SoftBank, for better or for worse, is a company where the decisions are taken by one man - Masayoshi Son. SoftBank can be suitable for entrepreneurs looking for a door opener, public relations, and Son's network of other investments, such as Uber, Klarna and TikTok.

Cohen told "Globes," after being appointed to head SoftBank's investments in Israel, "SoftBank was a natural choice. It is something that goes far beyond a venture capital fund. Because of the team, because of its international capabilities, it is a kind of global problem solver. I will lead the fund's efforts in Israel by working with many partners alongside Yanni Pipilis in London (SoftBank's Europe and Middle East team head and SoftBank Vision Fund managing partner) and other places in the world.

"I am seeking new ways to support industry in Israel and the entire region. Beyond being a fund that connects to advanced technology and artificial intelligence, SoftBank is one of the biggest players in investments in technologies of the future.

To what extent can Cohen, who does not come from the sector, connect to his new job? "Firstly, it is connected to things I already did in the past. That is to connect between technology and making the world a better place. Technology is part of the solution for the biggest challenges in improving world health and the quality of life."

"From my job in the past, I bring with me a strategic approach, together with the ability to implement it outside of our borders. I think that SoftBank can be a huge and important partner for Israeli industry in the future and I can mediate connections for it that do not exist for it today."

"I will be most accessible for entrepreneurs. From the moment that I joined the fund, I knew that it was going to be an intensive job. SoftBank and I are absolutely committed to that."

On the dire shortage of high-tech employees in Israel, which is the biggest obstacle for companies wanting to succeed, Cohen said, "The path to technology education must begin at the youngest ages and youths must be channeled into science and engineering disciplines. This must be clear because technology is a resource that all of us need, only more so than in the past.

Published by Globes, Israel business news - en.globes.co.il - on July 12, 2021

© Copyright of Globes Publisher Itonut (1983) Ltd. 2021

Yossi Cohen  credit: Reuters
Yossi Cohen credit: Reuters
Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018