Co authored by Jon Medved, CEO, OurCrowd
As modern science has recently borne out, old married couples really do begin to look like each other over time. And while UK-Israel relations tell a story of a steadfast although occasionally testy marriage, certain recent trends in commerce between the countries shows that there is a macroeconomic analogue to this human phenomenon.
Each country's comparative advantage is clear. In traditional finance, London is undoubtedly a force to be reckoned with, sitting in a consistent neck-and-neck battle with New York City for the coveted title of the world's top financial capital. When it comes to innovation and entrepreneurship, on the other hand, the eyes of the world are on Tel Aviv. The synergy of its buzzing atmosphere and entrepreneurial culture is the creative energy which feeds the city's unparalleled early stage innovative ecosystem.
According to a recent report, however, one spouse is beginning to look a lot more like the other. Indeed, Israel is becoming an increasingly important financial player, having moved up 11 places last year to number 25 on the list of global financial centers. While banking giants Citigroup and Barclays have been operating in Israel for a while, they have recently taken the initiative to capitalize on the environment in which they find themselves. In short, banks, including British ones, are making "Aliyah" to embrace innovation.
Citigroup, for example, has followed the lead of New York and London's fintech innovation labs by establishing its own accelerator program in Tel Aviv. Barclay's has also developed an in-house R&D center in Tel Aviv, attracting some of the sharpest minds to pioneer the upcoming technologies.
From the Prime Minister down, the UK government is committed to a stronger research and innovation partnership with Israel. This is why 2014 was a record year for trade between the two countries. According to the UK government, British exports to Israel have grown steadily. Israel is the UK's fourth largest market in the Middle East and North Africa region.
At the same time, and perhaps because of this increase in UK financial activity in Israel, Tel Aviv is turning to London as the gateway to Europe and the rest of the world. This is, of course, unsurprising. According to London and Partners, forty per cent of the world's top companies with a regional or global HQ in Europe are in London. As an international trading city with a high concentration of headquarters and corporate functions, all in close proximity, London is the perfect environment for global businesses. Add into the mix the fact that London was voted the world's most influential city by Forbes, ranked the leading city of opportunity by PwC, and recorded more incoming FDI projects than any other European city in 2014.
This has all resulted in a renewal of commercial vows, of sorts, between the countries. Indeed, exports from Israel to the UK increased by 4.8% last year while exports flowing in the other direction increased by a whopping 12.9% according to the Israel central bureau of statistics.
The coupling of British investment and Israeli technology provides an important synergistic boost to both countries in the increasingly fierce international commercial and trade arenas. It also bolsters each country's bid for global influence and recognition, both of which are integral to their respective economic successes.
And it is not just the institutional financial powerhouses that are looking to Tel Aviv. Consider the curious case of crowdfunding. As with any investment platform, this one relies on its promise of generating returns on investment that exceed traditional investment vehicles.
And while not every investment in crowdfunding will result in an ROI equivalent to investing in Facebook before it became a $200 billion public company, the platform certainly does provide ground floor investment opportunities that traditionally have only, unfairly, been within the purview of a select few: large companies, institutional investors and extremely high net worth investors.
The UK, forever a pioneer in the finance sector, has wasted no time in embracing the platform. For example, the crowdfunding market in the UK has now become the second largest after that of the U.S. According to Forbes, Europe's alternative finance sector grew by 144 per cent last year, but remains completely dominated by the UK.
Following the lead of Citibank and Barclay's in the traditional financial sector, crowdfunding investors from the UK and the U.S. are now turning to Israel to identify and invest in the next wave of transformative companies with potentially sizeable returns.
The UK and Israel make for excellent partners in research and innovation, business and trade - and though the U.S. is considered Israel's greatest ally, Israel is increasingly looking to work with the "young and energetic" London's tech industry as opposed to Silicon Valley.
As outgoing Israeli Ambassador to the UK, Daniel Taub, recently said, "It has been a good feeling to know that relations between the two nations are probably as good and as strong as they have ever been."