According to the recently published PwC Israel 2014 Hi-Tech Exit Report, with nearly $15 billion in exit deals, 2014 was by far an all-time record year for the Israeli hi-tech industry. The report notes that the amounts invested in Israeli hi-tech is increasing, many funds are raising capital and new investors are joining in on the investments. The vast amount of capital that specifically comes from U.S. investors is of particular importance to Israeli start-ups and emerging companies, and the following ten points provide guidance for successfully navigating the U.S. venture capital market.

  1. Get comfortable with your potential investor. The identity of the investor is the most important item of a term sheet. It is a make or break relationship. Just because the investor is from the United States, it does not mean it is the right investor for you.
  2. Be prepared to share control and information, and to listen. People who think they know it all – don’t.
  3. Understand the cultural differences. “Looking forward” does not always mean they mean it. Sometimes, it means they are polite. Dress and act appropriately, and consider how cultural differences could impact the relationship once they become investors in your company.
  4. Realize that valuation is only a component of an economic deal. Unrealistic expectations are often an excuse for investors to move on. Preferences and other economic terms can have a more material economic impact than valuation.
  5. Non-economic issues can be more important in the long run. Veto rights, ability to influence exit, control over new investors, etc.
  6. Have your corporate ducks in order. The simpler your cap table – the better. Missing documents, missing shares, missing minutes, too many outstanding options – all could be the kiss of death. Make sure all of your documents are in English and look professional.
  7. Make sure your IP and confidential information are protected. NDAs and Assignment of Technology Agreements are a must.
  8. Don’t underestimate or overestimate the importance of patent protection. Don’t kill it by premature disclosure, but don’t think having a patent makes you invincible. Realize that having patents does not necessarily mean having the freedom to operate your invention.
  9. Understand the pros and cons of convertible debt. What happens if there is no triggering event? Will future institutional investors like it?
  10. Have a general understanding of the lingo. Full ratchet vs. weighted average; participating preferred; bring-along and tag-along, etc.. But remember – only a fool has himself for a lawyer.