Why Israeli Startups Come to China And the Future of Smart Cities

smart city (source: shutterstock)

“We don’t have natural resources in our country, so we have to make our own. Technology is Israel’s natural resources,” said a CEO of an Israeli start-up, who was invited to the Nanjing Innovation Fair 2019 at Nanjing Techweek along with over 400 other companies. Nanjing has long been under the radar of startup founders, as it is home to R&D centers of many multinational corporations. The city is also the densest in China in terms of universities and is one of the country’s manufacturing centers.

Israel, a nation that’s smaller than China’s smallest provinces both in territory and population, has an incredibly flourishing tech and innovation environment. Despite the fact that it is not comparable to China or the US in scale, it boasts very impressive statistics. For instance, one in 350 people in Israel engages in startup activities, while the proportion in Europe is one in every 20,000.

Israel (source: AFP)

In 2018, the average investment in startups made per person in Israel was around $700, which is more than anywhere else in the world. In the US that number is around $400, in China it’s just $50. According to the latest statistics, 536 multinational companies have already arrived in Israel to seek innovations, those include Microsoft and Cisco and Chinese companies like Hisense and Haier.

We sat down with Eyal Hoffman, CEO at Highroad, an Israeli incubator specialized in urban tech to discuss his interest in China, Israel’s success in urban tech and his vision for the future of smart cities.

Eyal Hoffman (source: Highroad)

What opportunities do you seek here in China?

We think Israel and China have a lot of potential for collaboration. Most importantly because Israel is an innovative state. People are creating new technologies and new ideas almost constantly. We in Highroad, know how to take early-stage companies with seed products to our launch events, but after that we look to multi-national corporations in China to take it to the next stage. We know how to get it from zero to one, China knows how to take one to one hundred and to one thousand. This is what we are looking for.

What kind of services do you provide for the companies in your portfolio?

For companies with potential within the urban tech area, we help them to build products and get credits for the market. Getting into the market is not enough, you have to scale up. Israel is a small place, the startups in Israel never look at Israel as their market, they are all looking towards the global market. Whether it’s China or the US or Europe, and Chinese really know how to take something and make it huge.

How do you cope with localization? As you said Israel is a small place, you want to spread the idea to the world, what are the experiences you gathered over the years in terms of localization?

We do localization at the very beginning. It’s hard to make a product and then try to localize and adjustment it. We partner with local companies who know the market and have the ability to take it to their market. The reasons we are here now is to find local partners in China or other places that can really take our products to their local market. This is the way to scale up, because most company probably need a sales director or business development director in China, Europe or the US, but you don’t need all that you could just partner with people who know the market.

What are the thresholds for a company that wants to enter your portfolio?

We only take companies that have minimum of two founders, and deep technology. The core should be tech, and we look at the really unique stuff. Like the e-scooter companies, there are already enough of those. Since we are vertical focused and we come from professional background as well, we could really see the potential of very early stage companies, and this is unique, because most investors only look at opportunities when they can measure them on a financial level, but they don’t have the expertise to measure the idea before that.

Basically what we do is we try to see the potential even before the sales and financial aspects kick in. We see the potential of the team itself, which is the most important thing at this stage. In our three months program we have a company that has only three people.

What other assistance do you provide for the companies?

I must say financial support is secondary. The main value we provide our companies with is the very process we are taking them through. We give them mentors, and experts in each of their fields of specialty. We take them to partners, meetings with investors. By the end of the program we have a very big demo event. By then they will definitely have some products to showcase. So we bring these relevant people to these companies, and we do also take equity from the companies.

What is the rate of success?

You have to look at it from a time perspective. Up until now, all our companies have succeeded if you take the measurement of whether they die during the process. They have either raised funds in a much greater valuation, some have even gained clients, none of them have closed or died, or did a downround. (you raise a round with a smaller valuation than the previous one.) which is also an indicator of failure.

Why are you interested in smart cities and urban tech?

1.3 million people are moving into cities each week. One quarter of the world’s population lives in a city with more than 1 million residents. Take Nanjing for instance, the Yangtze River Bridge they light for two hours and turn it off, same for the Bund in Shanghai, because it’s too much electricity. That’s why urban tech is what cities should improve on. In 2018, over 80 billion dollars were spent on smart city solutions worldwide. That number will almost double by 2022.

To me, smart cities are an illusionary idea, is it practical?

Smart city doesn’t have to be a specific term. It’s not like you can categorize cities as smart or not smart. It is a concept that cities need to embrace and to work on. Our definition would be, it is a city that utilizes technology to make daily lives better, bring more efficiency. Let’s say, a city has free wifi all around the city, smart waste management and smart traffic lights, or other solutions.

You can take a look at some companies in our portfolio and see how diverse they are: Aura develops an air management system for indoor environment, that can detect and filter all kinds of hazards and pollutants; ACiiST develops a technology that enables you to spread wired network through an urban area without digging the ground, laying new lines of communication; Powhere develops a charging assistant for electric vehicles that uses Artificial Intelligence and Machine Learning; Slyde develops transportation management solution for school buses; ITC develops a smart algorithm for optimizing the traffic by managing the traffic lights.

There has to be a part that technologies cannot handle, where they do they need human assistance?

If it’s a solvable problem, computers will do it better. If it’s a non-solvable problem such as optimizing the routes, you cannot find an optimal solution, you can only get close to that. Let’s say, we have people working on it with tens of years of experiences, and on the other side of it will be algorithms. The latter models always win.

I like the touch of humanity in this design.

This is exactly what we do. The essence of urban tech is to improve people’s daily lives. In many aspects and many fields, they will make my life and your life better.