Exit Nation? 95% of Israel start-ups sold abroad

Report to Securities Authority recommends government take steps to help companies fund themselves locally.

June 4, 2013 14:06
2 minute read.

computer and young people 370. (photo credit: Marc Israel Sellem)

Israel may have a sterling reputation for producing hi-tech start-ups, but when faecd with the decision to go public or sell out, 95 percent sell to foreign bodies, according to an interim report submitted to the Israel Securities Authority (ISA) on Tuesday.

In 2012, Israeli hi-tech companies raised only 27% of their funds from local venture capital funds, while the rest came from abroad or other sources.

The report was compiled by the Committee to Promote Investment in Public Companies Engaged in R&D, and outlines preliminary recommendations the government could take to help companies fund themselves locally instead of looking abroad for capital.

“Due to the dependency of young hitech companies on foreign funds, and the fact that over 95% of these companies are acquired by foreign corporations, the committee recommends implementing a number of moves which will contribute, in the aggregate, to producing an efficient and worthwhile option for raising funds,” the report stated.

The committee recommends that the Tel Aviv Stock Exchange create a special “elite tech” listing for hi-tech companies, that will grant exemptions and reduce reporting requirements to make listing easier. It also suggests the state offer tax breaks to investors who buy shares of research and development companies during their initial public offerings.

The report recommends encouraging the creation of more local venture capital funds and the provision of special regulations and tax incentives to focus them on Israeli hi-tech. The proposed regulation would not tax the company’s assets until they were sold, provided that the company invested 70% of publicly raised funds in locally traded hitech.

It also recommends other solutions, such as opening up online crowd-funding to help young companies find investors.

ISA chairman Shmuel Hauser said keeping technology companies in Israel is important due to their significant contribution to economic growth and job creation.

“The need to undertake measures to help Israeli R&D companies raise capital is unquestionable,” he said, “whether this be through public offerings on TASE, through TASE-traded venture capital funds and R&D partnerships that invest in hi-tech companies, or through off-exchange financial mechanisms.” Hauser also expressed his regret that Mellanox – one of the largest companies traded on the TASE – had announced plans to delist from the Israeli exchange and maintain trading solely on NASDAQ, where it was cross-listed.

“While our listing on the TASE has provided a venue for certain Mellanox investors to trade, we believe it’s in the company’s best interest to concentrate our trading on NASDAQ,” CEO Eyal Waldman said at the time, citing the desire “to be subject to one set of listing regulations instead of two.” Hauser on Monday dismissed the explanation, saying it was exempt from reporting requirements under local regulation, arguing that both economic and Zionist values should encourage it to stay.

“These kinds of companies have the ability to enhance the role of the Tel Aviv Stock Exchange and contribute to economic growth in Israel,” he said.

Mellanox is not alone. Wix, a successful Internet start-up that helps companies put together websites with ease, announced on Tuesday that it filed forms with the US Securities and Exchange Commission in order to go public there.

Warren Buffett’s Berkshire Hathaway scooped up the Iscar metalworks company in May, and, according to the rumor mill, Apple, Google and Facebook have each tested the waters to buy Waze, a crowd-sourcing map application.

The CEO of the stock exchange, Ester Levanon, promised to follow the committee’s recommendations and do whatever was necessary to carry them out.

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