Finally, Crowdfunding comes to Israel
Crowdfunding, a practice adopted by high-tech startups as an alternative means to raise funds, was previously limited in Israel by Israel’s Securities Law. Currently, any offer or sale of shares to the public (i.e., to more than 35 potential investors) requires the issuance of a prospectus approved by the Israel Securities Authority. This is a timely and costly endeavor, which renders crowdfunding prohibitive in Israel.
A new law published last Thursday changes this landscape. It provides an exemption for small companies (not just startups) from the need to issue a prospectus when crowdfunding and raising small amounts of financing from various investors.
The applicable regulations that will determine the parameters of the exemption have yet to be published. The current expectation is that investments of up to NIS 10,000 per investor for each investment, and NIS 20,000 per investor in the aggregate per annum, will be exempt. Additionally, the relevant company will be limited in the aggregate amount it can raise through crowdfunding per annum, and the expectation is that the cap will be several million shekels. In the interest of protecting the public, the regulations will require that at least one accredited investor participate in the crowdfunding. Additionally, such crowdfunding must be executed through an internet portal regulated by the ISA.
In addition, the law allows the establishment of high-tech funds that trade in a model similar to the venture capital funds listed for trading in the US and the UK. These funds are to be traded on a new index on the Tel Aviv Stock Exchange (TASE). The idea is public and institutional investors can now invest in funds, which in turn invest in a wide variety of Israeli high-tech companies, thus reducing investors’ exposure when compared to investing in lone ventures. This new model provides a welcome alternative for high-risk high-tech companies seeking financing.
Moreover, the ISA is seeking legislative approval regarding new regulations to provide additional concessions to high-tech companies. Such concessions include the right to submit annual reports and prospectuses in English (as supposed to Hebrew) and to prepare financial reports according to the principals of US GAAP (rather than IFRS). These proposed changes will save Israeli high-tech companies significant expenditures when registering on TASE, and allow them to attract investments from US investors without having to turn to the NASDAQ.
The new law demonstrates that Israel has recognized the credit crunch affecting high-risk companies; the obstacles faced by small startups when approaching the traditional and powerful financing sources of banks, institutional investors, and venture capital funds; and the consequence of a global trend in social financing. Global markets and leading websites, including the Lending Club in America, Zopa in England, and Blender in Israel, have all taken advantage and offer crowdfunding tools to interested companies.
Our Capital Markets Department is one of the leading law firms in Israel that advises clients on crowdfunding matters. If you have any specific concerns, we would welcome the opportunity to discuss these further with you. For more information click here