Deputy CEO Head of Corporate Banking Division, Bank Leumi
DLDTelAviv14 - Funding Models pt.1 (Beinart, Berrebi, Chelouche, Oron, Rosenbaum)
Funding Models with Yossi Beinart, Yifat Oron, Yoav Chelouche, Marc Rosenbaum and Jeremie Berrebi moderated by Guido Romeo.
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About Yifat Oron
Yifat Oron, Deputy CEO and Head of the Corporate Banking Division at Bank Leumi, has spoken publicly about the role of the banking system in Israel's technology sector. In a 2023 interview, she stated that the banking system had been "completely lacking" as part of the "startup nation" ecosystemikuha. She has also discussed the need for more talent in the tech industry, saying that Israel is "lacking thousands" of people that companies would hire if they could find them. Oron has commented on global technology trends and geopolitical dynamics. In 2019, she noted that regulators and politicians have debated whether large technology companies should be split up, with some arguing they are "too big to fail" and others that their parts would be worth more if separated. She also remarked that Israel may need to decide "who is a friend" in terms of capital sources. In 2017, she said that China's restrictions on outbound capital had caused a "significant decrease" in investment flows into Israeli tech. Oron has also emphasized the importance of unit economics in technology investing, stating that companies had "forgotten about being profitable" while focusing on revenue growth.
Transcript (6 segments)
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Guido Romeo0:00
Hello, welcome, welcome to DLD. My name is Guido Romeo, I'm data and business editor for Wired Magazine in Italy. And I have the privilege to be with you here today at this wonderful festival and in an incredible city that I have visited several times, but I must say that in these days it has a very special vibe. And I have also the privilege of moderating this panel which features very important names for the Israeli innovation ecosystem and for the innovation world all together. So it's my pleasure to introduce Yossi Vardi, who you already know very well I guess here in Tel Aviv, CEO of the Tel Aviv Stock Exchange. Next you'll see Yifat Oron, CEO of LeumiTech. And next to me here, Mark Rosenbaum from PwC. Each of them has a different role and they will explain you why they are here. Jeremy Berabi, co-founder, Ki Adventures, somebody who knows Israel but not only Israel because he's been investing in Italy of all the places. And last but not least, Yoav Chelouch, co-chair of the IATI, managing partner of the VDC. Welcome everybody. I would ask you all to introduce yourself starting from Mr. Vardi, Yossi, and just a brief introduction to make all of you understand who they are and what they're doing and why they're relevant to your occupation here. And then we'll go with questions and try your best to leave time for questions for a Q&A at the end, please.
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Yossi Vardi2:11
Thank you very much. How many of you were at the opening ceremony this morning with the president or former president? Quite a few. At the very end he was kind enough to play this prototype of augmented reality technology developed at the Technion in Haifa. Being a prototype, the whole idea was to show the technology. So let's take this startup, we had a tutor from the university and a few BC students doing a project, and let's assume everything works out and they say there's something here, let's make this a company. So the natural course or order of things, they will get some money, friends, family, they'll start something, it will look okay, they will do an extensive round of talks with VCs. If they visited 50, 49 will throw them out. If they got lucky, they got a bit of money, maybe from you, and they did one round and then the second round and things go well. Actually around the third or the fourth round they have customers, they're starting to grow. And at some point in their life cycle they need a substantial amount of investment. And this is where things get a little complicated. Somewhere between maybe the VC and the private equity or maybe after that, they're facing a dilemma, they need to make a decision. And the decision is, how do I go about my next round? Do I go private? I try to go public, i.e. I raise public funds. Sadly, in Israel, until now, and this is what we're working on, the market has failed. Because us being a startup nation has not shown itself in our ability to build to last. Somewhere in the process, maybe around 100 million, 30 million dollars of market cap and above, the company is selling, they have revenue, they may not make a little profit, they get stuck. And the answer should be, try to go to public market, it fits them, that is the right size, the right ecosystem, the right kind of incentives around the market. And we did not have that market here. Sadly, a lot of them get sold, you know the numbers as well as I do. M&A activities in Israel is vast, people sell the companies I think actually too early and very few of them managed to grow. So I'm quite glad that I got the opportunity when I joined the exchange a month ago, that a very long process of trying to establish a better market and a better product for high-tech companies is actually coming to fruition. An effort by the Israeli Securities Authority, the Tel Aviv Stock Exchange, the Ministry of Finance and other government ministries to try to find a way to help startups, technology companies become public is on the verge of being launched. And among other things, we, the exchange, are going to do stuff we've never done before. We're going to provide the mechanism for analysis, so companies that become public, one of the biggest problems they have is that nobody knows or cares about them, they're too small. There will be some form of analysis, there will be some tax incentives at various levels for founders, etc. All this by the way is on our website, go look at it, it's the R&D report. It's actually quite interesting I think, although I wasn't part of it, I got it as a gift when I joined. But I think this is the way for us. The subject for this panel is public funding and the questions will be asked about it. I fundamentally believe that the role of government, just like Yozma was some years ago, we started the high-tech industry in Israel, is to provide some incentives for companies and for investments to start coming public and grow. And this is what we're about. So with a bit of luck, if we sit here in three, four years, we're gonna say we had tens if not over a hundred company startups that managed to bridge this gap between private small funding and gut funding using public markets. Obviously I have an incentive, they'll do it through us, and we'll manage to bridge this gap between startup nation and build to last and see large companies. Thanks.
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Guido Romeo6:39
Well, ambitious plan. Good luck. Cheers, please.
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Yifat Oron6:44
Sure. So my name is Yifat Oron, I'm heading LeumiTech. And before I tell you exactly what LeumiTech is, I would like to mention that I agree very much with my neighbor here. I think that in few areas we've been excelling and we were evangelists even compared to other places around the world. But funny enough, as a startup nation, one of the things we know is that banks, or Israeli banks, were not a part of the ecosystem or at least not perceived to be a part of the ecosystem. I represent Bank Leumi here. People are asking me, you know, how come the banks were not a part of the business? And I think it's, you know, for all of you guys, and you're probably all coming from the tech economy, you understand it. For a banker to be able to judge a technology company and look at the technology company P&L and balance sheet and actually be able to analyze it from a credit position is a very, very tough job. Now I'm not saying it's not possible, but it's a very not trivial job. I think that one of the things we've seen in Bank Leumi is that Bank Leumi realized this many, many years back, about 15 years ago. And what the bank has done is to locate specific bankers who only deal with high-tech, because you cannot expect somebody who works with small businesses that we're seeing in Israel, many of them, and do a business with high-tech at the same day. It's a different language, it's a different skill set. And the bank has identified this and has about 12 different teams around the country that only deal with technology companies. I think that throughout these 15 years the bank has actually learned enough to be able to sort of graduate to the next level. And what we've done now, which is the launch of LeumiTech, is a new initiative which is the entire Leumi group initiative. We have the bank in Israel, we have a bank in the US with offices in New York, Palo Alto, we have a bank in the UK with a big office in London. And what we're trying to do, we're trying to step to the next level where we actually work closer with the companies, we actually provide them credit, something that was almost not done by Israeli entities. And I think that the actual mission or the end game is going to be very similar to what Yossi spoke about, is to actually allow the companies to get funding in Israel and grow instead of running to look for credit outside. And you can imagine that when a non-Israeli bank gives credit to an Israeli company, a day after they get the money they need to relocate all of their accounts and all their financial activity outside of Israel. So what is actually happening is that we're, as a country, we're taking all the risk in the beginning and we don't actually enjoy the fruits. So I think this is a major thing that Bank Leumi is going to do in the industry. By the way, just as a matter of perspective, for looking at companies and technology companies around the world, Israeli companies don't lever their balance sheets the way they should. So we got used to funding companies equity only. I think it's something that testifies on a relatively early stage venture community because we're only essentially a 20-year-old business and we're lagging behind the US companies for example, because they're more financially savvy, I'll call it this way. And if you look at balance sheets of American companies, even early stage ones, they have about 30, 35 percent of their balance sheet coming from credit. In Israel it's about 10. So I think as an industry this is the way we need to grow, this is the next level. Bank Leumi is going to hopefully be the driver for that. Just in a very quick note, less so about the funding, but what we're trying to do also is to incorporate a strategy of actually working with the startups, not just providing them credit. And this has to do with all fintech programs and opening up APIs to collaborate with LeumiTech. And I'm very optimistic.
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Yoav Chelouch11:12
All right, thanks. So my name is Yoav and I'm a venture capitalist with Aviv Ventures, but in this capacity today I'm a co-chair of IATI. IATI stands for Israel Advanced Technology Industries. We're happy to be a partner with DLD here today. And we serve sort of as an umbrella organization for the entire high-tech ecosystem in Israel. We have hundreds of members which range all the way from startups to most of the R&D centers of the multinational corporations here in Israel, venture capital funds, service providers, audit, legal, technology transfer organization of universities and basically you name it. As it relates to the financing side, which is our topic today, I'm sure we'll be discussing more as we go through the process here about the phenomenon of angels and super angels. One of the things we're trying to do for companies is the following: help them really boost their capability to raise capital and develop their business. It means that we have seminars about building presentation and business plans, presentations about business models, about IP situations. We participate in competitions. Yesterday there was one run together with Mastercard and Citi, and that's I think the third annual one, which allows companies not only to compete but also to get a higher level of PR and notoriety. And when that happens, you know, people start calling on them, especially analysts from other funds or corporations. We develop speed dating opportunities with chief innovation officers of large companies who come to Israel and want to meet with sort of pre-selected companies in their domain. So basically we do a lot of groundwork in creating know-how, opportunity, and mechanisms for these companies. We also develop sort of missions from industries who go together to trade shows around the world. And because we develop complete missions, it allows us to basically create meeting events with high level of executives and target companies that most of the startups would have not been able to arrange on their own just given the scale differences. So there's a lot of activity there. Another point I'd like to raise before I pass on the mic, which we as an organization are concerned with, is the following: Israel's economic future is very much tied to high-tech. We rely on high-tech as a percent of exports to the highest degree in the world. About 50 percent of our industrial exports come from high-tech. We're talking about 4,800 startups and about 600 companies formed annually. I'm not sure how many are closed, but annually we have about 600. They all need capital, they all need to raise money, they all need to somehow try to succeed. Not all of them, most of them will not, but the question is, are we giving enough chances to those who need to succeed? Now, and about 10 percent of the workforce in Israel is employed by the high-tech sector. That being the case, we are sitting here puzzled by the fact that most of our institutional investors hardly participate in the country's most important industry, Bank Leumi excluded. Okay, so what we're trying to at least encourage them is to allocate up to one percent of total long-term savings towards different high-tech vehicles. They are managing over a trillion shekels now, very soon it will be almost two trillion shekels. And since the people in high-tech also have good savings and good pension schemes, it makes only good sense for them to reinvest back into the economy. And we're trying to develop different schemes to go together with government and with the stock exchange and anybody who can partner to that to encourage them to participate. Thank you.
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Jeremy Berabi15:10
Hi, so I'm Jeremy Berabi, I'm French, living in Israel since 10 years. So I'm probably the only one working not only on the Israeli market but on the worldwide market. I'm an angel investor investing in one, two, three startups a week everywhere in the world. I began to do that in 2010. I invested until today in 340 startups in 33 countries. So I invested in Israel in something like 30 startups as a very early investor. And yeah, I'm still investing all over the world. So perhaps I can talk later about what I think about different subjects.