The social phenomena of crowdfunding, adopted by high-tech
startups as an alternative means to raise funds, was previously
limited in Israel by Israel's Securities Law. Section 15 of the
law dictates that 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 Securities Authority; a timely and
costly endeavor, rendering crowdfunding prohibitive in Israel.
Last Thursday, as 2015 ended and we welcomed in the new year, a
new law (by way of an amendment to the Securities Law and the Joint
Investment Trust Law), The Law for the Encouragement of Investment
in High-Tech Companies, was published. The new law provides an
exemption for small companies (not just in the field of high-tech)
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, and only time will tell how
lenient the Securities Authority will be. However, the current
expectation is that investments of up to NIS 10,000 (i.e.
approximately USD 2,500 at the time of writing) per investor for
each investment, and NIS 20,000 per investor in the aggregate per
annum (i.e. approximately USD 5,000 at the time of writing) will be
exempt. In addition, 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 NIS. In the
interest of protecting the public, the regulations will require
that at least one accredited investor participates in the
crowdfunding and that such crowdfunding is executed through an
internet portal regulated by the Securities Authority.
In addition, and following laws already adopted in the United
States and England, the new law also provides for the establishment
of high-tech funds. These funds are to be traded on a new index on
the Tel Aviv Stock Exchange (TASE). The idea is that the public and
institutional investors can now invest in funds, which in turn
invest in a wide variety of Israeli high-tech companies; reducing
the investors' exposure when compared to investing in lone
ventures. This new model provides a welcome alternative for high
risk high-tech companies seeking financing and/or looking to be
traded on TASE.
Moreover, the Securities Authority are 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
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. A
need recognized by the global markets and the leading websites
– the Lending Club in America (traded on NASDAQ), Zopa in
England and Blender in Israel.
Originally published January 3, 2016
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The Provisions of the Companies and Allied Matters Act (CAMA) and a Company's Article of Association ("Articles") provides for the transfer and transmission of shares of the shareholders of the Company.
One of the most significant issues in the capital raising process relates to the identity and character of the potential investors.
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