Bank opens first fund to help local entrepreneurs

Asquith Israel Merchant Bank: "Our classic investor: somebody who is passionate about helping Israeli companies expand."

By NADAV SHEMER
January 19, 2012 21:59
4 minute read.
MICHAEL FREEDMAN of Asquith Israel Merchant bank.

MICHAEL FREEDMAN, Asquith Israel Merchant bank 311. (photo credit: AJC Chicago)

Asquith Israel Merchant Bank, a newcomer to the Israeli banking scene that aims to strengthen small- and medium- sized businesses, has opened its maiden fund, it told The Jerusalem Post this week.

Asquith is promoting itself as the first true merchant bank in Israel, following in the footsteps of famous Jewish families like the Rothschilds and Warburgs who pioneered the field in the 18th and 19th centuries.

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Merchant banks are different from other investment banks in that they typically provide capital to private companies, usually in the form of equity, alongside advisory services on corporate finance and business development.

In Series I, the fund launched this week, Asquith expects to raise between $1 million to $5m., which will be funneled immediately into four existing technology-focused Israeli small- and medium-sized enterprises (SMEs). Series I will act as a trial before the launch of the full merchant bank later in the year.

The companies selected for the first round are: Gamasec, a developer of a cloud-based service that identifies security weaknesses in websites; Aqua Era Farms, an operator of recirculation systems that enable production of quality, ecofriendly fish; VideoCells, a developer of low-cost video surveillance technology; and CartaSense, a provider of a system for real-time monitoring of goods through disposable wireless sensors.

Once the merchant bank becomes fully operational, investors will vote on which companies receive their financial backing, Asquith executive director Michael Freedman told the Post.

The investors who have already indicated their support have embraced the idea of sitting on the bank’s advisory board, he said.

“That is our classic investor: somebody who is passionate about helping Israeli companies expand,” said Freedman, who made aliya from England in 2009. “What they don’t want is to have to do it on their own. The idea that they can make a professional hobby out of it, where through an Anglo institution they get to play with Israeli innovation, is something that excites them. They can see right through to the bottom line: where we create jobs and we create a good name for Israel.”

Asquith’s management team includes individuals who are already well-known in the Israeli business community.

The chairman is Shmuel Ben- Tovim, a former economics minister at the Israeli Embassy in London and a nonexecutive director of Bezeq, Israel Chemicals and Bank Leumi. The CEO is Eial Diskin, who also heads Israeli corporate financier IBDC.

The merchant bank’s model will work in three stages, Freedman said. First it will invest in selected companies from its own fund. Then it will raise more funds as corporate financiers. (Asquith’s own funds will never provide more than 20 percent of total investment in any single company, he said.) Finally, the bank promises to assist its clients with business development, using its contacts in the UK, North America and elsewhere to help the company expand.

“A very big part of our philosophy is that we are not an exit-driven fund at all,” Freedman said. “The big difference between us and VCs [venturecapital funds] is that they are always looking at where the exit is, and most Israeli entrepreneurs are naturally very exit-driven as a result. We are very different to that.”

He likened Asquith’s model to that of “slow food,” a concept invented in the 1980s as an alternative to “fast food.”

The model aligns the interests of investors, the companies who receive the money, and Asquith as the manager, Freedman said, as everybody can see what is happening, which leads to greater trust and to the various parties finding new ways to help each other.

The 2007-08 global financial crisis provided the impetus for merchant banking’s rebirth, he said, as it exposed investment banks for lacking interest or understanding for the products they sold. The key words in the post-crisis environment are “transparency” and “liquidity,” he added, meaning that if you can demonstrate transparency and investors deem you sophisticated enough, you essentially become a private investors club, in regulatory terms.

Because Asquith’s investors are wealthy enough, and because investment activity takes place outside of Israel, even though it is directed toward Israeli companies, the bank was able to reach an agreement with Israeli regulators to remain unregulated here. It maintains its official headquarters in the British Channel island of Jersey and is obliged only to keep Israeli regulators informed of its activities.

One of the bank’s main aims is to promote SMEs, which are not funded well in Israel, where heavy amounts of capital are directed toward startups and where a large portion of the market is dominated by big business, Freedman said.

The idea for Asquith came long before the emergence last summer of a public protest movement raising awareness of socioeconomic problems, he said, adding that growth in the SME sector would create jobs for the middle class and provide a solution to many of the hardships they face.

“We created Asquith for all the same reasons that [protest leader] Daphni Leef pitched her tent,” Freedman said, “although with completely different ideas on what the solutions are, because our view is that solutions don’t lie with government, but rather in the private sector.”


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