Nowadays, early-stage fundraising of Israeli start-up companies is mainly the province of venture capital funds or private angel investors. However, such fund sources are usually limited in time and in their ability to supply the required finance at later stages. Furthermore, there is an inherent risk in relying on foreign venture capital funds, namely that changes in the global economy may result in a reduction in investments at times of difficulty in foreign countries.
In light of the above, a need was identified to find additional effective local solutions for raising capital for Israeli start-up companies, both via the Tel Aviv Stock Exchange (“the TASE”) and off-exchange. As a result, in September 2012 the chairman of the Israeli Securities Authority established the Committee to Promote Investments in Public Companies Engaged in R&D (“the Committee”). The submission by the Committee of its recommendations has led to the preparation of a bill entitled the Bill to Promote Public Investments in High-Tech Companies, 2014 (“the Bill”). The main goals of the Bill are to strengthen the TASE as an alternative for financing Israeli start-up companies, thereby increasing the likelihood that these companies will develop in Israel, reducing the dependence of these companies on foreign financial markets and improving the domestic capital market for the benefit of all of its investors.
In order to reach these goals, the Bill proposes a number of measures. These include reducing the existing requirements accompanying public offers where financing is sought via crowdfunding; amending disclosure requirements with regard to publication of prospectuses and corporate governance requirements; and establishing high-tech trading funds, which may constitute a financial solution for Israeli start-up companies or may serve as a form of investment in Israeli high-tech companies who wish to list on the TASE. The Bill notes that it is hoped that these measures will enable early sales of Israeli high-tech companies listed on the TASE and will contribute to the efficiency of any IPOs.
Specifically, the proposed measures are to be implemented through the amendment of the following Israeli statutes:
- An amendment to the Securities Law, 1968 (“the Securities Law”), in respect of the following matters: first, an amendment aimed at exempting companies meeting certain conditions (such conditions to be determined by the Minister of Finance) from the current requirement to submit a shelf offering report before each shelf offering, thereby enabling such companies, while traded on the stock exchange, to offer securities to the public in accordance with an existing valid prospectus. Second, an amendment aimed at allowing an Israeli corporation that is not a “Reporting Corporation” (as such term is defined within the Securities Law) to offer securities to the public without publishing a prospectus, by way of crowdfunding. The suggested amendment includes certain conditions, limiting the maximum value that both the company and each investor may receive in such type of investment, and is intended to allow companies to expand the use of crowdfunding as a financing source. A third amendment is intended to relax existing reporting and disclosure requirements for companies appearing in the Tel-Aviv Tech-Elite index or which meet certain criteria to be determined by the Minister of Finance.
- An amendment to the Joint Investment Trust Law, 1994 to enable the establishment of venture capital trading funds which would invest in the Israeli high-tech industry. The main goal of this amendment is to adjust the rules which apply to venture capital trading funds to fit the changing needs of the high-tech industry.
- An amendment to the Companies Law, 1999, which would lighten the corporate governance requirements with regard to young high-tech companies most of whose technological and business knowledge is held by their founders.
The Bill is indeed a positive and important proposal. However, due to the recent dissolution of the Knesset (the Israeli legislative authority) in preparation for elections in the spring, it seems that it may take some time until it comes into force.